Fiscal Policy Used in Pakistan
l Contractionary
¡ A decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two for the purpose of decreasing aggregate demand and thus controlling.
Objectives of fiscal policy in Pakistan
l Self reliance
l Expansion of exports
l Containment of import of luxury and non-essential goods
l Promotion of investment
l Reduction in income disparity.
Fiscal Performance during 2009-10
l Total revenue for FY2009‐10 summed to Rs. 2,078.2 billion, up by 12.3 percent over the fiscal year 2008‐09.
l A shortfall of Rs. 77.2 billion was seen against the budgeted estimates.
l Tax revenue registered a growth of 22.3 percent, adding Rs. 1,472.8 billion to the revenue side in 2009‐10.
Fiscal Projections for 2010
l The fiscal deficit is projected to increase to 6.3% of GDP in 2010 from 5.3% in 2009.
l The FBR is targeted to collect Rs.1327 billion in 2010 from Rs.1157 billion in 2009.
Major Heads of Revenue
l Tax Revenues
l Non-Tax Revenues
Major Heads of Expenditure
l Current Expenditure
l Defence
l Debt servicing
l Current Subsidies
l General administrative
l Development Expenditure
Problem1: Why Pakistan faces large revenue – expenditure gap?
The principal reason lies in the structural weaknesses of Pakistan’s tax system which is Complex, Inefficient, and Unfair.
Solution
l Widening the tax base
l Lowering tax rates
l Taxing all value additions including services, not just manufacturing sector
l Establish an effective and efficient tax system.
l Overcome the culture of tax avoidance and evasion
Problem2: Why Pakistan is facing budget shortfall?
l Increase in non-development expenditure.
l Too many factories are closed or in partial production for want of power and gas
l Tax Evasion by well performing industries (cement)
l Stock Exchange and Real Estate pay minimal tax.
l Corruption by Tax Officials
l Law and Order causing burden on the Expenditure side by way of compensation to the affected and mobilization to send forces to such areas.
Solution
l CBR should impose new taxes
l Increase the price of utilities
l Decrease in development spending
Conclusion
l Pakistan fiscal position worsened because of unexpected events occurred on domestic and external scene.
l High proportion of revenues being spent on defense and interest payments.
l Lower industrial productivity leads to lower tax collection because of high interest rates.
l Pakistan needs to increase tax base by imposing tax on agriculture and capital gain to increase revenue.
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