KARACHI: Zakaria Usman President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that the first time in the history FPCCI has announced the shadow budget for fiscal year 2014-15. According to the President FPCCI, shadow budget has been prepared completely on impartial, unbiased and transparent basis. The accelerated economic growth in long-term and providing the relief in short-term to the over burdened segments of the society are the generalized principles adopted in the formulation of budget proposals.
Zakaria Usman mentioned that being the apex trade body and the representative of all the local chambers of commerce and trade associations in Pakistan, FPCCI is concerned with the federal budget and fiscal policy. Being the bridge between the public and private sector, the FPCCI feels its responsibility to contribute in the problem solving policies and measures. It was a common practice in FPCCI to submit the tax proposals for federal budget. However, this year we decided to present shadow budget along with the tax proposals.
President FPCCI informed that the theme of our fiscal policy is based on the slogan: To provide relief to the common man, grow economy and save Pakistan. To save Pakistan, we adopted the survival strategy. It was observed that major irritants in the systems are not based on economic policies; these are based on administrative measures and procedural requirements.
He further said that before presentation and preparation of shadow budget and tax proposals, FPCCI has organized several workshops and meetings. In meetings of the working groups, the proposals submitted by the member bodies were discussed with details. Some contradictory proposals received by the member bodies have been re-examined and the final proposals were redesigned in line with the best interest of the nation.
The Federation of Pakistan Chambers of Commerce & Industry is presenting its proposals for Federal budget 2014-15 at the time when the economy of Pakistan is passing through a transformation regime. Global development rankings are being rapidly changes. G7 (and G8) club has extended to G13 by including 5 fast growing nations. Historically, the rate of growth of Pakistan economy was higher than the growth of those five nations which now have been included in G13. We have lost the track of faster growth two decades before. The present deteriorated physical and governance infrastructure do not allow us to run at the fast track of development. Now, our domestic economy is under extreme pressure due to severe energy crisis which has damaged the industrial activities in the country. Outflow of investment, growing unemployment, increasing inflation, lower capacity to generate public revenue, high indebtness and social unrest are the ultimate outcomes of this crisis. The contemporary history of world politics indicates that economic power leads the nation on all fronts including politics, education, culture, military and technology. We are well aware about the fact that things have changed under “Globalization” and the responsibilities of private sector are completely changed and enhanced. Now, the social and economic development of a society is directly linked with the developmental activities of the private sector.
Zakaria Usman also said that this is the first time in FPCCI’s history that we are revealing our economic philosophy for the betterment and prosperity of nation in term of fiscal policy. Our shadow budget is a part of FPCCI’s efforts for revival of economy through achieving a higher rate of growth. For this purpose FPCCI has prepared a long-term development strategy -‘Vision 2025’ program. The present shadow budget is a continuation of the long-term development strategy prepared by FPCCI. To develop a fiscal policy is a prerequisite of national budget. We suggested an expansionary fiscal policy with ensuring fiscal discipline, equity, and shifting the responsibility of economic development to private sector. Dissolution of economic functions, fast-track privatization, limited use of cash balance by the federal government and higher spending on infrastructure development are the key ingredients of this fiscal policy.
Total budget outlay in monetary term proposed by FPCCI is Rs.4.4 trillion which is almost 22 percent higher than last year budget announced by the government of Pakistan. Current expenditures are estimated at Rs.3110 billion which is 71 percent of total budget, while Rs.1260 billion have been reserved for development expenditures which is around 29 percent of total budget. The share of development expenditures in total budget was 21 percent in last year. Expenditures for payment of interest are estimated at Rs.1269 billion, for defense affairs and services Rs.690 billion, and the rest of budget will be used for grants and transfers, subsidies, and running of civil government etc.
On revenue side total tax collection is estimated at Rs.3146 billion which is 34 percent higher than last year; however, this increase in tax revenue is not based on the higher tax rates. We suggested a new tax regime where the rate of GST will significantly decline. Out of Rs.3146 billion gross tax revenue, Rs.1866 billion will be transferred to the provinces under the divisible pool transfer mechanism described in NFC award. The remaining tax revenue and non-tax revenue of federal government will provide Rs.2184 billion to the federal government to run its activities.
Zakaria Usman also informed that the IMF recommended target for budget deficit-to-GDP ratio is 3.5 percent. According to our estimation this ratio will be around 3.6 percent for 2014-15. It indicates that total deficit of Rs.1084 billion. It is corroborated with these estimates that Rs. 4370 billion will be available for all federal expenditures and transfer payments including recurring and development expenditure of the federal government. It means government has to reduce its expenditures significantly.
On the basis of 7 percent real growth GDP is forecasted at Rs.29901 billion. During the last 10 years this ratio has been moving between 8 and 10 percent. On the basis of our estimates, the total tax outlay for 2014-15 is forecasted at Rs.3146 billion, 34 percent higher as compared to the revised targets for 2013-14. To reduce the fiscal imbalances and meet the budgetary targets we suggest that no sector should be exempted from income tax. Every earner should contribute in the national exchequer on the bases of his earnings regardless the source of income.
Zakaria Usman President FPCCI said that according to our assessment 10.5 percent Tax-to-GDP’ ratio is a realistic target for 2014-15 (11 % for 2015-16 and 12 % for 2016-17), although it requires strong administrative measures by the Federal Board of Revenue (FBR) and taxation authorities.