Tax cuts for industry, modest tariff reductions and a higher than expected deficit, were the main of the 1995/96 budget announced by Minister of State for Finance, Makhdoom Shahabuddin, on 14 June.
The budget deficit target has been set at 5 per cent of gross domestic product (GDP) for fiscal 1995/96, which starts on 1 July, down from 5.6 per cent the previous year, Shahabuddin said. In early June, the government said it was aiming for 4 per cent of GDP, in line with IMF recommendations.
The maximum ceiling for import duty was cut by just 5 percentage points to 65 per cent. The IMF target was 45 per cent. Last year’s reduction to 70 per cent from 102 per cent led to a severe revenue shortfall in 1994/95, which could not be offset by increased receipts from the sales tax as planned, Shahabuddin said.
It is the second budget since Prime Minister Benazir Bhutto’s government returned to power in 1993. The government has had to tread a delicate path between meeting fiscal targets to maintain IMF approval, and avoid imposing stringent measures on the business and local community. In the new budget, the government appears to have favoured the latter course, analysts say.
‘Given our objective economic situation, we can today chart a less drastic course of reform,’ Shahabuddin said. ‘The less drastic the reforms, the less drastic the burden on our honourable, hardworking citizens.’ Shahabuddin said that Pakistan had not yet consolidated its economic recovery, the pace of which would depend on natural factors, such as the weather and international prices.
Other budget measures include:
Import duties on several synthetic raw materials have been cut, to assist the textile industry. Duty on purified teraphthalic acid (PTA) has been cut to 15 per cent from 25 per cent. Duty on polyester chips and polyester staple fibre went down to 20 per cent from 30 per cent and on caprolactum to 15 per cent from 20 per cent. Duty on man-made yarns and threads was also cut.
Corporate rate taxes have been reduced. Rates have been cut by 2 per cent to 60 per cent for financial companies, by 3 per cent to 36 per cent for public companies, and by 3 to 46 per cent for other companies. The cuts will cost the government Rs 1,570 million ($50.6 million).
Bonus shares and bonus issues will now be taxed at 15 per cent for private companies and 10 per cent for public companies with effect from 30 June. Stocks’ analysts said it would have a negative effect. Companies previously issued bonus shares instead of cash dividends, which are already taxed.