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What to expect in FY11/12 Pakistan budget

KARACHI: Pakistan is due to announce its budget for the 2011/12 (July-June) fiscal year on June 3.

Following are some targets that could be announced:

Pakistan’s economy is expected to grow 4.2 percent in the coming financial year, which starts on July 1, after what is expected to be growth of 2.4 percent this fiscal year.

The Asian Development Bank has forecast growth next year will be 3.7 percent. It expects persistent energy problems and security issues will continue to check Pakistan’s growth in 2011/12, with surging inflation posing a major risk.

According to reports, the government is targeting tax revenue at 1.95 trillion rupees ($22.7 billion) in the next fiscal year, compared with the Federal Board of Revenue’s estimate of revenues of 1.59 trillion rupees ($18.56 billion)this fiscal year.

Analysts expect the revenue board to collect 1.5 trillion rupees this year and some say its target for next year’s tax revenue could be unrealistic.

Analysts said there is hardly any room to cut on the expenditure side as 75 percent of the Federal Board of Revenue’s tax revenue goes on debt servicing or interest repayments and security related expenditure.

However, the government could eliminate untargeted subsidies such as electricity subsidies. It has been reported that the government is going to increase electricity tariffs by 2 percent each month.

Another option would be to sell off loss-making public sector enterprises which according to analysts would cost about 300 billion rupees ($3.5 billion) this year just to run.

According to finance officials, Pakistan is budgeting 495 billion rupees ($5.78 billion) for defense, an 11.7 percent increase from last year. Analysts said that was a realistic increase and was less than the annual rate of inflation which is at 13.04 percent.

Pakistan is likely to allocate 280 billion Pakistani rupees ($3.3 billion) for development spending in 2011/12 fiscal year.

Inflation is being projected to come in at 12 percent next year while the fiscal deficit is expected to be contained to 4 percent of GDP.

According to media reports, the government may decide to remove the capital gains tax. A 10 percent capital gains tax is imposed on stocks held for six months or less, 7.5 percent on stocks held between 6 months to a year.

Officials from the finance ministry declined to comment.

– Imposition of a gross asset tax or a wealth tax
– Imposition of a reformed general sales tax or a “plan B” which would include removal of exemptions. According to sources Pakistan and the IMF agreed to end existing exemptions on a general sales tax.
– Imposition of tax on agricultural income but that would be announced in provincial budgets. (Reuters)

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