ishaq dar's winding-up-budget speech -13-14 (22.6.13) (1)

7/28/2019 Ishaq Dar's Winding-Up-Budget Speech -13-14 (22.6.13) (1)

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Bismillahil-Rehmanil-Rahim

Concluding Speech 2013-14

Delivered b y

Senator Mohammad Ishaq Dar

Federal Minis ter for Finance, Revenue, Economic Affairs,

Statist ics and Privatization

In the National Assembly on 22nd June 2013

Introductory Remarks

Mr. Speaker,

1. I am most grateful to the members of this august House for

holding a very lively debate on the budget proposals for 2013-14. I

am equally grateful to the Senate of Pakistan and its Standing

Committee on Finance for participation in the debate on the budget

and formulation of detailed recommendations for the consideration

of the National Assembly.

Mr. Speaker,

2. I am heartened to note that many speeches in both the

houses, particularly those by the Leader of the Opposition and

parliamentary leaders, were very well argued. Politics apart,

elections have been held; the nation has given its verdict. Now we

must all work together and play our role in strengthening


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Pakistans economy. This budget belongs to everyone and so

does the economy. It is an established fact that our economy is

afflicted by malice and that we have to cure it and make it become

healthy again. Part of the medicine is precisely a unified view

about the agenda of reforms that must transcend the political

divide. Nothing would be more potent in rehabilitating our economy

than an unequivocal signal that the direction we are giving the

economy is based on national consensus.

Mr. Speaker,

3. It is precisely with this aspect in view that I and my team,

who have taken copious notes from every single speech, have

evaluated all comments and suggestions with an open mind and

wherever we have found merit we have decided to incorporate

those in the final budgetary proposals. Time will not permit me torespond to all those comments and suggestions, but some of the

observations that have constantly recurred during the debate I find

incumbent on me to respond.

Labor and minimum wage rate

Mr. Speaker,

4. It has been said that the budget has offered nothing for the

laborer. Indeed, the biggest welfare measure for laborer is to

create more jobs for them. The budget speech has so many

references to job creation that I would not like to waste the time of

this House by referring to all of them. But let me note three


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important places where I have alluded to job creation. On Page-12,

Sub-Para-8, I have pointed out that jobs will be primarily created in

the private sector but public sector will also play an effective role.

For the private sector jobs, we are undertaking a whole range of

measures that will create an enabling environment for private

sector to begin to invest in the country, as our Investment/GDP

ratio has faltered to an unacceptably low level of 14.2%. We are

committing to take it to 20% over the medium term and that this

policy initiative will alone create a very large number of jobs for our

laborer and educated youth. In the public sector, I noted that

despite presenting an austere budget we are taking the

development budget from Rs.360 billion budgeted last year to

Rs.540 billion in FY 2013-14, which is a 50% increase.

5. And while giving the details of the development expenditure,

most notably in the context of investments in Highways and othernational projects, on Page-20, I had submitted that such a large

program will create numerous job opportunities for the laborer.

6. Finally, on Pages-24 and 25, while discussing the measures

planned for the promotion of industry and regional trade, it had

been noted that under the present state of affairs, where themanufacturing sector during the last five year has shown anemic

growth, the job opportunities required for absorbing our youth have

not been created, and hence there is a need to give a fresh life to

our industry and regional trade, as has already been emphasized

upon by the Prime Minister Nawaz Sharif during his speech in this

house.


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7. It was also said that we have not announced any increase in

the minimum wage rate. As we all know, after the 18th

Constitutional Amendment, labor has been devolved to the

provinces. It is not a very healthy situation that there is competition

amongst provinces and federal government on the question of

minimum wage rate. Our government wanted to see what the

provincial governments are deciding in this respect. All provincial

governments have announced their budgets and two of them,

namely Punjab and Khyber Pakhtunkhwa, have decided to raise

the minimum wage rate from Rs.9000 to Rs.10000. In this

background, the federal government has also decided to increase

the minimum wage rate in the federal areas from Rs.8000 to

Rs.10000 with effect from 1st July 2013.

Farmers

Mr. Speaker

8. I now move to another repeated comment related to

agriculture and farmer. It is stated that the budget does not have

any mention of farmer. Here again, I would humbly submit that this

is not based on a close scrutiny of the budgetary proposals. Thecentral concern of our farmers is the availability of water, fertilizer,

credit and good prices for their produce. And I have addressed all

these four subjects in my speech.

9. In the context of development plan, the first sector I selected

to highlight was the water sector at Page-16. The extensive list of

projects in the water sector new canals in far-flung areas, lining


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of canals and water courses throughout Pakistan and numerous

schemes for flood protection and drainage of water are all aimed

at bringing more cultivable land for farmers, providing more water,

saving loss of water and protecting them from flooding. A huge

amount of Rs.59 billion has been kept for this purpose.

10. We have increased the subsidies for fertilizer from Rs.10

billion during the outgoing financial year to Rs.30 billion in 2013-

14. We are also making arrangements for timely import of

fertilizers.

11. The most notable thrust of our economic policy is to make

credit available to private sector, which includes farmers also.

Presently, there is hardly any significant amount of credit available

to private sector, as government is taking away a lions share of it.

We are taking measures to change all this and Inshallahincreasingly larger share of credit will be made available in the

private sector and farmers will benefit from this expanded credit.

12. Finally, let me point out that in the context of building

highways, on Page-18 of the budget speech, I have stated, and I

quote:

Both urban and rural populations need

communications for their economics. Farmers will not

be able to get good prices for their produce nor can

urban producers be cost effective in the absence of

communication links that can efficiently transport their

products to target markets. Indeed, we must treat


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part. The Prime Ministers Youth programs, small loans,

microfinance, housing finance support, education fee support and

others will all be part of the larger income support program.

IMF Program

Mr. Speaker,

16. One of the honorable members has questioned the wisdom

for holding talks with the IMF. It is imperative that I spell out in

some detail the logic behind our engagement with the Fund.

17. First, it should be known to all that IMF is here primarily to

hold the Article-IV Consultations, which is an annual feature with

all member countries. Post-Program Monitoring is also a part ofthis since the previous regime borrowed 200 percent of Pakistans

Quota from the IMF. Consequently a Post-Program Monitoring will

be conducted regularly until the outstanding amount falls below the

above threshold.

18. The time to amortize the IMF loans drawn by the previousregime is now upon us, and we are required to pay back a huge

amount of $ 3 billion during 2013-14. Consequently, it has become

imperative to engage the IMF and other IFIs so that we can

amortize the loans obtained by the previous government (which

have already been used up). But I must assure you that during this

process, the national interest of Pakistan and its people will be the


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primary focus. We have never before, nor will we now,

compromise on the national interest.

19. Somebody has said so beautifully:

Taxation proposals

1% Increase in GST rate

20. The most debated tax proposal is the increase in the GST

rate from 16% to 17%. I understand the feelings of the members

and I am taking most sympathetic view of their observations.

However, in order to truly appreciate the perspective in which such

a measure was adopted it is important that I make some further

remarks about the state of the economy we have inherited:

(1) First, in the current year, there is a revenue shortfall of

Rs.375 billion in FBR collections. Against a budget

estimate of Rs.2381 billon, we are expected to end the

year, with difficulty, at Rs.2007 billion. Without

exaggeration, this year must be the only year in FBRs

history that budget target has been missed with such

massive margin. Indeed, the additionality of one full

year has been lost. It is for this reason that I am trying


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to make the lost revenue and only a marginal increase

beyond that;

(2) On top of the revenue shortfall there is an overrun of

Rs.602 billion in expenditures not counting the circular

debt of Rs.503 billion of which Rs.326 billion I have

announced to be paid during the current year;

(3) If I do not mobilize tax resources, none of the

expenditures I have placed before the House can be

postponed. The only way open to government, then,

would be to print money. This would be extremely

imprudent, as it would unleash explosive inflation that

will hurt the poor more than the rich. I respect the

views of the leader of the opposition when he said that

his government was not ashamed of giving away

Rs.1400 billion in tariff differential subsidy. If he is so

proud of subsidizing electricity through printing ofmoney, why did he not make electricity free to all

consumers? We are public servants and every

authority vested in us by the people is in trust. If we

resort to unlimited printing of money we are debasing

the money held by others, and this essentially means

decreasing the wealth of the people. Responsibilitydemands that we should be mindful of the size of

resources available and limit our expenditures

accordingly.

(4) The 1% increase in GST was in place a couple of

years ago and was imprudently withdrawn by the

government. 17% GST is not a rate too out of line with

those prevailing in other countries. However, I assure


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you that as soon as our revenue position so permits,

we will reduce this rate

Tax anomalies for salaried taxpayers

21. Several members and a section of the media have pointed

that the tax proposal relating to revision in tax rates for salary

income have led to an increased tax liability for low income groups,

benefiting the middle income groups and higher tax liability for

higher income groups. While the last two outcomes are in line with

the intended reform the first outcome is painful to low-income

groups and is not consistent with our intended reform. I am

convinced of the logic and have therefore decided to make

necessary adjustment in the proposal so that the tax liability of

those having an income Rs.2.5 million or less will have the same

tax liability as previously.

Rental income

22. One of the reforms we brought in the income tax law was to

move in the direction of eliminating different blocks of income into

a unified definition of income. Rental income is one such block,taxed separately than other incomes. Presently it is taxed at a

presumptive tax rate of 10%, which is full and final settlement of

the tax liability. In this budget we proposed to raise the tax and to

introduce several slabs going up to 17.5%. However, in the

existing proposal the presumptive character was retained. With

rising tax liability it will not be desirable to maintain the

presumptive nature of the tax as it may give rise to unintended


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inequities. In the light of the recommendations given by the

honorable members, it has now been decided to tax rental income

at two withholding rates of 10% and 15%, which will be adjustable

at the time of final assessment.

Taxation proposals relating to academics

23. I am also grateful to those members who expressed concern

on some proposals related to researchers, teachers and non-profit

educational institutions. Two proposals affected them. First, the

75% rebate in tax liabilities of teachers and researchers was

withdrawn. We have revisited the subject and found that even if

this facility was abused, it may not be prudent to withdraw it in one

go. Accordingly, it is decided that the rebate will be reduced from

75% to 40%. Second, withdrawal of a clause that accorded tax-

free status to non-profit institutions was construed as a movetoward taxing the surplus income of such institutions. There is no

truth in this. All that is intended is that such institutions will now

seek a one-time certification of their non-profit character from the

Commissioner of income tax and afterward they will continue to

enjoy the tax-free status.

Tax on Hajj operators

24. Another comment that has constantly reverberated the

debate is the tax on Hajj operators, misleadingly believed to be a

tax on Hajjis. At the outset, let me clarify that a tax on the income

of the Hajj operators is already in place at the rate of Rs.2500 per

haji served by the operator. This rate has been raised to Rs.3500


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for 2013-14. This in line with the rising earnings accrued to Hajj

operators and has been worked out in consultation with them. It is

unfair to construe this tax as a levy on Hajjis. It is an established

principle of taxation that the incidence of direct taxes squarely falls

on the taxpayer and no portion of it is shifted to others.

Accordingly, it is misleading to suggest that this tax will be passed

on to the Hajjis.

Access to banking information

25. Many members, both from Senate and National Assembly,

have expressed grave doubts and apprehensions on the provision

of banking information as contained in the proposed Section-165 A

of Income Tax Ordinance, 2001. It is very important for me to

clarify this provision and allay the apprehensions of the members. I

will make three submissions in this regard:

(1) First, the proposed move is completely in line with how

the world is moving and it will be imprudent of us to

ignore all that is happening around us. It is also

needed to prevent any perceptions that our banking

and taxation systems are not synchronized or that ourbanking system can be abused as a safe heaven for

tax evasion;

(2) Second, the information accessed is not by an ordinary

field officer of the tax department. It is only the Board,

defined as Board in counsel with chairman and

members, which can access the information;


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(3) Finally, there is significant protection available in law

against the possible abuse of this information by tax

authorities. As provided in sub-section 4 of the

proposed section, the information so obtained from a

banking company is declared as information under

Section-216 of the Income Tax Ordinance, 2001, which

makes it confidential and prevents its division by a

public servant. Under Section-198, any violation of

Section-216 is an offence punishable by fine and a

prison term of 6 months. To further strengthen this

punishment, it is now proposed to raise the fine to a

minimum of Rs.500,000. With such heavy penalties no

one should doubt that any public servant, that too at

the level of the Board, will ever dare divulge this

information for any purpose other than what it is

intended for.

Relief for stationary items, milk and dairy products, and

bicycles

26. Some members have objected to elimination of zero-rating

status to stationary items, milk and dairy products, and bicycles.We have decided to accept their suggestion and restore their zero-

rating status. Consequently, there should be no change in prices of

these times in the market.


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Security of our strategic assets

Mr. Speaker

30. As the budget debate was taking place, many things

happened in Pakistan, including the unfortunate incidents in the

province of Balochistan. Inevitably, members had to speak on

those events alongside their views on the budget. Unfortunately, in

reaction and exuberance to these events, some of us went over

board and have made some unwarranted comments. One such

comment was related to our strategic assets so dearly nurtured

and evolved by our nation. I think it is extremely important for us to

restrain our emotions, no matter how charged we may be, within

the bounds of national security and we must draw some red-linesthat must not be crossed under any circumstances. Casting

aspersions on strategic program and expressing views that would

be potentially used against us by others is inconsistent with

prudential behavior.

31. It is in this backdrop that I am constrained to reflect on thesecurity arrangements designed for our strategic assets both as a

Cabinet Minister and a member of the Command and Control

Authority, the highest decision making body responsible for our

strategic program. To this end, I would like to make the following

submissions:


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(1) At the outset let me make it abundantly clear that

Pakistan has a most responsible program of strategic

assets fully compliant with all internationally accepted

standards of safety and security;

(2) The program that evolved in separate units until 1999

was brought under a unified command called National

Command Authority, headed by the Prime Minister of

Pakistan. A Special Projects Division (SPD)

coordinates the individual programs and weaves them

together in a single national program. A Strategic

Forces Command is responsible for the security of the

program;

(3) A rigorous Regulatory Regime regulates all matters

related to nuclear safety and security, including

physical protection of materials and facilities, fissile

material control and accounting, transport security,prevention of illicit trafficking and border controls;

(4) A comprehensive Export Control Regime provides laws

that are at par with standards followed by the Nuclear

Suppliers Group (NSG), the Missile Technology

Control Regime (MTRC) and the Australia Group.

(5) The essential elements of the security regime are:(i) A well trained, well equipped and dedicated

security force of 25,000 personnel;

(ii) A Special Response Force;

(iii) A Special Escort Force;

(iv) A Marine Force for shore-based facilities;

(v) Counter Intelligence Teams;

(vi) Personnel Reliability Programs;


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(vii) Modern technological equipment;

(viii) Ground and aerial mobility for rapid response;

(ix) A dedicated SPD Training Academy for security

training.

32. We are ever vigilant and never complacent. We remain alive

to unthinkable scenarios and our alert systems are constantly

maintained at the highest level and kept under constant review.

Mr. Speaker,

33. This is a program, which in the 65 years of the countrys

history has proved that our whole nation stands in cohesion and

unity behind its development and progress. As we all know, this

program is not associated with any particular individual, any onepolitical party, any specific ideology, or any single establishment.

This is, in fact, our heritage; and it is our decided national

consensus that under no circumstance and under no challenge will

we ever disassociate ourselves from it or shy away from doing all

that is necessary to protect and safeguard it. Thus, why would we

make such common heritage and symbol of national unity, asubject of suspicion or apprehension?

34. I am confident that what I have stated above will give comfort

to our people and raise their confidence on the safety and security

of our strategic program. I want to also send an unequivocal

message to others that Pakistan is a highly responsible member of

the international community and fully dedicated to ensuring that its


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strategic assets remain safe and secure and completely out of

reach of anybody inside or outside of Pakistan.

Concluding remarks

Mr. Speaker,

35. All the amendments which I have just mentioned have been

submitted to National Assembly Secretariat

36. Before I conclude my discussion on the budget, let me once

again thank you for the highest standards of impartiality you have

set and the competent manner in which you have conducted the

proceedings of the Assembly.

37. I also thank the members of both Houses of the Parliament

for their spirited participation in the budget debate.

38. Finally, let me thank the officials of the Ministry of Finance

and Federal Board of Revenue, as well as all officers and staff

associated with secretariats of the two houses, who have worked

tirelessly for the preparation and presentation of the budget.

39. Thank you, Pakistan Painda Bad.

ishaq dar's winding-up-budget speech -13-14 (22.6.13) (1)

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