June 7 (Bloomberg) -- Pakistan imposed taxes on shares and electronic appliances and reduced ministers’ salaries to help cut the budget deficit to a six-year low and slow inflation.
“The fiscal deficit target is very conservative, disciplined and tough,” Finance Minister Abdul Hafeez Shaikh said at a news conference in Islamabad yesterday after unveiling plans on June 5 to narrow the fiscal gap to 4 percent of gross domestic product in the year starting July 1. “We have to do this because government borrowings fuel inflation.”
Consumer prices are running at over 13 percent in South Asia’s biggest economy after India, hurting livelihoods in a nation where the World Bank says a quarter of the people live on less than $1 a day. A lower budget shortfall may also enable Pakistan seek more funds from the International Monetary Fund as donor countries delay aid, Shaikh said May 12. The nation got $11.3 billion from the IMF since 2008 as war costs rose.
Pakistan says it spent $43 billion since 2001 in the fight against Taliban militants. The government is narrowing its budget deficit from as much as 5.6 percent of GDP this year even as it needs cash to build power plants, dams and schools. Its deficit target for next year is the lowest since June 2005, according to government data.
“The target for the fiscal deficit is ambitious,” said Sayem Ali, an economist at Standard Chartered Pakistan Ltd. in Karachi. “There are not enough avenues in the budget for revenue generation. The government is likely to enter into another IMF program.”
Aid Delay
Delays in aid worth $5.3 billion, pledged in April 2009 by the so-called Friends of Democratic Pakistan including the U.S., forced the government to boost borrowings by 14.5 percent to 365.9 billion rupees ($4.3 billion) in the 10 months to April from a year earlier, the central bank says, stoking inflation.
As demand for overseas grants rose, Pakistan’s rupee lost 1.4 percent against the U.S. dollar this year and closed at 85.42 rupees in Karachi on June 4, according to Bloomberg data. The benchmark Karachi Stock Exchange 100 index advanced 2.7 percent this year.
Shaikh said the total budget outlay for the new fiscal year is 3.26 trillion rupees, about 11 percent higher than the previous year.
“The focus of this budget is on austerity because the global situation is still volatile and the security situation is still not controlled,” Shaikh said. “We must protect the economic recovery of the last two years.”
Lower Deficit
Pakistan is aiming to trim its budget deficit as Europe’s sovereign debt crisis, which led to a 750 billion-euro ($913 billion) rescue fund for the region’s weakest members including Greece, threatens global recovery.
The nation’s $168 billion economy may expand 4.5 percent in the next financial year, the fastest pace since 2008, after growing 4.1 percent this year, according to the Planning Commission.
Sales at Pakistan’s biggest cement makers including Lucky Cement Ltd. and D.G. Khan Cement Ltd. may get a fillip as Shaikh unveiled plans to accelerate growth by stepping up spending on roads and dams by 38 percent next fiscal, Karachi-based KASB Securities Ltd. said in a report yesterday.
To increase revenue, Shaikh imposed a 10 percent capital gains tax on shares held for less than six months, and 7.5 percent for between 6 months and one year. There will be no tax for stocks sold after a year, he said.
Excise Duty
Shaikh also announced a 10 percent federal excise duty on appliances including air conditioners and deep freezers and raised levies on natural gas and cigarettes.
A proposal to introduce a new value-added tax has been delayed until Oct. 1 because the finance ministry is still working on the modalities of its implementation, Shaikh said. As a result, the general sales tax will be 17 percent for the first three months of the new financial year, instead of levies varying from 16 to 25 percent, that offer scope for corruption and tax evasion, he said.
On Oct. 1, the value-added tax will be imposed at a flat rate of 15 percent, replacing the general sales tax.
Pakistan Telecommunications Co., the nation’s biggest fixed-line provider, may gain because of the changes in the value-added tax rate, according to a June 6 report by Al-Falah Securities Ltd. in Karachi.
Shaikh, who took an oath as finance minister on June 5 after being appointed to head the ministry in March, also said cabinet ministers will take a 10 percent pay cut. He pledged to reduce subsidies on state-owned enterprises including Pakistan International Airlines Corp. and Pakistan Steels Mills Corp.
To contact the reporters on this story: Farhan Sharif in Karachi at fsharif2@bloomberg.net; Khurrum Anis in Karachi at Kkhan14@bloomberg.net.
Source: bloomberg.com By Farhan Sharif and Khurrum Anis
0 comments:
Post a Comment