Economy of Pakistan:

An Overview of Fiscal Operations

KHURAM HAMEED PARACHA

41ST CTP, OFFICE MANAGEMENT GROUP

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 Learning Outcomes

• To make the audience understand the fiscal operations of the country

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 Some Key Definitions

• GDP: Market Value of all the products and services manufactured in a year
• Per Capita Income: GDP divided by the population
• Total size of Pakistan’s economy is $340 billion or PKR 105 trillion
• Budget: An estimate of income and expenditure
• Fiscal Policy: Use of Taxation and spending to influence economy
• Fiscal Imbalance: When income is not equal to expenditure
• Monetary Policy: Changing the interest rates to influence the supply and
demand of money
• Trade Policy: Use of taxes and other tools to promote exports and regulate
imports
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Institutions and How Policies are articulated
Economic Monetary Fiscal Investment
Trade Policy
Policy Policy Policy Policy

Tariffs; Tax
Interest
Public subsidies; exemptions;
rates and
Instruments expenditures refinancing; protection;
money
and revenues trade facilitation;
supply
agreements value-chains

Enhance
Equitable Productive
Objectives Price stability trade volume
distribution investments
and exports

Growth, Development and Prosperity

Source: Presentation on Pakistan Economy0316-5701593

by Mr. Rehan Saleem, JS MOD
 Fiscal
Operations

Revenue Expenditure

Indirect Share of All Other

Direct Taxes Taxes Provinces Expenditures

Income Tax Sales Tax Custom Duty FED

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 Budget Preparation Process

Ministries/ Ministries/
Drawing &
Finance Division Divisions/ Divisions/
Disbursing Officers
Departments Departments

• Issues Budget Call • Review / amend as

Forward BCC to Prepare estimates of per policy
Circular
Officers/ DDOs to expenditure in the guidelines and
submit budget given government policy
• Review
proposals by due format/Indicative
departmental • Forward to Finance
date Budget Ceiling
proposals Division

Source: Presentation on Pakistan Economy by Mr. Rehan Saleem, JS MOD

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GOVT REVENUES

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 Types of Federal Taxes

• Indirect vs Direct Taxes

• Domestic Taxes
• Income Tax
• Sales Tax
• Federal Excise Duty
• Customs duties
• Duties on imports and exports
• Revenue from auction of confiscated contraband items
• Petroleum Development Levy

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 Income Tax

Income Tax Ordinance 2001

• Tax on Income – calculated for a Financial Year (Tax Year)
• Progressive Tax – more you earn more you pay
• Active Taxpayers List (ATL)
• Return of Income – Tax Year
• Wealth Statement (assets and liabilities as on 30-06-xx)
• Withholding Tax – at source
• Adjustable (provided Return filed)
• Final discharge
• Different rates - ATL

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 Sales Tax

Sales Tax Act, 1990

• Sale and supply of goods – domestic & imported into Pakistan.

• Sales Tax on services - The Islamabad Capital Territory
• All goods taxable except exempted
• Sales tax is charged @ 18 % - 25%
• Value Added Tax mode (VAT) to avoid cascading effect
• Concept of Input tax
• Zero Rated vs Exempt Supplies

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 FED -

Federal Excise Act 2005

• Tax on production of Goods

• Now similar to sales tax (VAT mode)
• Cigarettes, Beverages, franchise etc

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 Customs

Customs Act 1969

• Guardian of borders against movement of contra band goods
• Facilitator of bona fide trade.
• major source of revenue
• Customs Duty
• Additional Customs Duty
• Regulatory Duty
• Protection of domestic industry
• discourage consumptions of luxury goods
• stimulate development in the under-developed areas.

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PUBLIC EXPENDITURES

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 Broad Categories of Expenditure

• Current Expenditure
• Recurring in nature
• Permanent responsibility
• Account for about 90% of total spending

• Development Expenditure
• One time in nature
• Discretionary / size changes with the economic condition

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 Expenditure FY 2022-23 (Rs. Billion)

Current 8,709

Development 727

Net lending PSEs 143

Total 9,579
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 Current expenditure

Interest Payments/Debt servicing 3950

Defense Affairs & Security 1563
Military Pensions 395
Running of Civil Govt. 553
Subsidies 664
BISP 360
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 Receipts FY 2022-23 (Rs. Billion)
Tax & Non-tax revenue 9405

Provincial Share (NFC) 4373

Net Revenue Receipts 5032

Budget deficit 4547

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 Key Questions

• Surplus Budget vs Deficit Budget?

• Easy Fiscal Policy vs Tight Fiscal Policy

• How to bridge the gap between Revenue and expenditure?

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Major Methods of DEFICIT
FINANCING?

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 Methods of Financing
External Financing

I. Grants and Aids

II. Multilaterals

III. Commercial Banks

Domestic borrowing

I. Bank Borrowings

II. Non-bank Borrowings

III. Institutional Borrowing

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 Proposed Financing of Budget Deficit for 2022-23

Net External Financing 1,611

Bank borrowing 843

Non-bank borrowing 1,996

Privatization Proceeds 96

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WHAT DID WE ACHIEVE IN 2022-23

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 What we actually achieved: Revenue
Planned Actual

Tax & Non-Tax Revenue 9,405

Tax & Non-Tax Revenue 8,880
Provincial Share 4,373
Provincial Share 4,223
Net Revenue 5,032
Net Revenue 4,656
Budget Deficit 4,547
Budget Deficit 6,676

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 What we actually achieved: Expenditure
Planned Actual

Current Expenditure: 8,709 Current Expenditure: 10,732

Development 727 Development 652

Net Lending PSEs 143 Net Lending PSEs -52

Total 9,579 Total 11,332

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 What we actually achieved: Expenditure
Planned Actual
Interest Payments 3,950 Interest Payments 5,696
Defense 1,563 Defense 1,586
Military Pension 395 Military Pension 450
ROCG 553
ROCG 634
Subsidies 664
Subsidies 1,080
BISP 360
BISP 408

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 What we actually achieved: Deficit Financing
Planned
Actual
Net External Financing 1,611
Net External Financing -680
Bank Borrowing 843
Bank Borrowing 3,693
Non-banking Borrowing 1,996
Non-banking Borrowing 3,662
Privatization Proceeds 96
Privatization Proceeds 0

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 Reasons for Fiscal Imbalances
• Low Tax to GDP (less than 10%)

• Provincial Transfers

• Heavy Borrowing cost due to Bank Financing

• Huge recurring expenditure

• Disproportionate size of Federal government

• Non-contributory schemes for post retirement benefits

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 Way Forward

• Increasing tax to GDP through increasing tax base

• Reducing the size of Federal government

• Contributory Pension schemes

• Renegotiating NFC share with Provinces

• Rationalizing monetary policy

• Balancing borrowing needs

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The Best Cure for Economy is Economy
Increasing Revenues

Cutting Down Unnecessary Expenditure

Make Every Rupee Count

Earning Best Value For Money

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THANK YOU!

Q&A

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