Public Finance

Latest Edition 2022

Lecture Notes of Sir Iftikhar Ahmad
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 1
 Chapter No. 1

INTRODUCTION TO PUBLIC FINANCE

QUESTION NO. 1:-
DEFINE PUBLIC FINANCE. DESCRIBE ITS SCOPE/SUBJECT MATTER.

Definition: -
Public Finance is defined as a subject that deals with financial operations of the States. It
Studies economic activities of the Government as a unit. But this is a narrow concept of Public
Finance. Now, its scope has been increased manifold. It has undergone with repeated revisions in
line with the development of State activities, economic philosophy and welfare of the society as a
whole.
Lord Dalton defines Public Finance as “Public Finance is one of those subjects which lie
on the borderline between Economics and Politics ant it signifies income and expenditures of “
the public authorities, broadly speaking Federal Government, Provincial Government, Local
Government and Autonomous Bodies.
Scope/Concepts/Subject Matter of Public Finance:

I. Public Revenue:
It deals with alternative sources of State Income. It discusses and analyzes comparative
advantages and dis-advantages of various forms of revenues and the principles
which should govern the choice between them. Of various sources of Public Revenue;
Tax Revenue, Non-Tax Revenue, Public Debt and creation of additional currency have
claimed maximum attention.

II. Public Expenditure:

Through it, Government participates and contributes to the financial laws of the economy
and influences its demand and supply pattern. It is also a major tool for implementing
welfare, growth, stabilization and other policies of the Government. The policies relating
to the public expenditures also include subsidies, provisions of infrastructure and transfer
payment etc.

III. Financial Administration:

All Financial activities involve the issues of financial administration including
public budget, its passing, implementation, auditing & similar other matters. Without a
study of relevant dimensions of financial administration, the subject of Public
Finance remains incomplete.

IV. Stabilization, Growth, Distributive Justice:

These have become leading issues in economic policies of modern Government
and, therefore, their financial implications deserve a separate treatment in discussion of
Public Finance Theory.

V. Federal Finance:
Existence of Multilayer (or Multi-Level) system of Government
necessitates corresponding divisions of functions and resources between different layers.
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 2
 Federal Finance deals with issues and problems relating to inter-Governmental
financial flaws; financial imbalances and their rectification. That is why; Federal
Finance had been an integral part of Public Finance.

VI. Issues of Public Policy:

A Modern Government is expected to deal with lots of socio-economic issues that keep
rising continuously. Such issues are of diverse nature and have serious financial
implications. They may be treated as an integral part of the other issues. Public Finance
plays a vital role in formulating and implementing public policy issues.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 3
QUESTION NO. 2: -
DEFINE PUBLIC FINANCE AND GIVE ITS IMPORTANCE.

Definition: - As Question No. 1

Importance of Public Finance

Everybody realizes the importance/necessity of money in all spheres and activities of

human life. The importance of money is too great to an individual. It is greater still to a
Government. As, a State has to perform various functions now a days, the importance of Public
Finance thus arises from the increasing functions of the State. For the performance of these
functions, money is needed. The strength of a nation is reflected in its budget. The extent of a
State activity and its efficiency primarily depends upon the length of its purse.
The Importance of Public Finance lies in the following:
I. Effective Instrument of Economy:
Public Finance is one of the most effective instruments of State control over economy. It
is not merely a means of collection of revenues and making disbursements.
II. Helps in State’s Financial Activities:
The State activities, which have to be financed by Public Revenues, are ever increasing.
This has added to the importance of the Public Finance manifold.
III. Helpful in Formulating Fiscal Policy/Tackles Economic Problems:
Growing significance of Fiscal Policy is tackling economic problems and this has
increased the importance of Public Finance.
IV. Helpful to Break Vicious Cycle of Poverty:
The study of Public Finance is especially important for the under-developed countries.
Only a prudent management of the State Finances is essential to break vicious cycle of
poverty in which the under-developed countries as a whole are involved. Fiscal
Policy is a powerful tool for increasing capital formation, accelerating economic growth,
increasing national income and raising the level of employment, removing regional
disparities and bringing national development etc.
V. Welfare for Citizens
Public Finance provides many programs for moderating the income of the rich and poor.
Such programs include social security, welfare, etc.
VI. Helpful in Making Welfare States
The acceptance of the principles of the welfare State, the role of Public Finance has been
increasing day by day. Modern Governments are no more police states or monarchy
states but now are welfare states.
VII. Even Distribution of Resources
Public Finance helps in even distribution of resources.
VIII. Infrastructure Development
It helps in infrastructural Development of the country.
IX. Constant Economic Growth
It helps in constant economic growth.
X. Promotion of Exports
It can play role in promotion of exports by giving incentives to the exporters in the
budget.
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 4
QUESTION NO. 3:-
WHAT ARE THE FUNCTIONS OF THE MODERN STATES?

Functions of the Modern States

The State is the name of political society and it is formulated in order to have certain
mutual benefits. The biggest objective or function of a State is to attain the welfare of its citizens.
For this purpose, the State keeps vigilant in providing facilities to its citizens and all the economic
activities are directly or indirectly affect the welfare of the people. Therefore, no State can
effectively work if it does not keep in touch the economic conditions of its people.
Following are the major functions of modern state
I. Protective Function
This Function is concerned with providing protection to the citizens of the country
from foreign aggression. In addition to this, the facilities of law and order also have
to be provided to the people. These are the basic functions of any State. Both life and
property protection are the primary requirements of any modern state.

Protective
Function

Primary Secondary
Requirements Requirements

Protection of Protection of Provision of Provision of Provision of

Life Property Health Education Social Justice

II. Allocative Function

It refers to the process by which total resources use is divided between private and
public goods by which the mix of Public/Social Goods is chosen. This is done by the
budgetary policy.
III. Distributive Function
The budgetary policy also affects the distribution of income in the community. The
tax and expenditure measures are adopted to modify the existing distribution with a
view to reducing economic inequalities. In this way, optimal income distribution is
brought about.
IV. Stabilization Function
The Budgetary Policy can also be used to maintain:
a. High Level of Employment
b. Price Stability
c. Economic Growth
d. Stability in Balance of Payments

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 5
 V. Economic and Commercial Function
The modern Government has to perform the functions which are concerned with
economic and commercial activities. These functions relate to the promotion of
business provisions and facilities to the business activities. For doing this, State
makes intervention in the economic activities (a) to break the monopoly (b) to save
the labor and consumer rights.
The above functions are sufficient to bring into focus the vital role that modern
Government plays in modern economic life. In fact, there is no aspect of economic activity which
escapes being affected by the budgetary policy.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 6
 QUESTION NO. 4:-
WHAT ARE THE EMPIRICAL TOOLS OF PUBLIC FINANCE?

Economic Analysis Tools:

Public Finance also known as public sector economics or public economics focusing on the
taxing and spending of government and their influence on the allocation of resources and
distribution of income. Public finance economists are influenced by their attitude towards the role of
government in the society through the economic tools.
Economic tools are the means to help economists derive results of the government policies.
These tools are of two types.
1. Theoretical Tools
2. Empirical Tools
Let us see them one by one in detail:
1. Theoretical Tools:
These are set of tools designed to understand the mechanics behind the economic decisions.
There are two types of primary theoretical tools:
I. Graphical tools
II. Mathematical tools
a) Graphical tools:
These include:
i. Supply and Demand Diagrams
ii. Utility Functions
iii. Utility Maximization
iv. Marginal Utility
v. Income and Substitution Effect
vi. Budget Constraints
vii. Indifference Curves
b) Graphical tools:
Mathematical calculations are the tools that help understand and illustrate the further
explanation of results drawn by theoretical economists.
2. Empirical Tools:
There are set of tools that allow us to analyze data to answer the questions that are raised by
theoretical analysis. Actually, it is use of data and statistical methodologies to measure the
impact of government policies on individual and market.
Examples: How increase in taxes, impact work behavior?
In empirical study, correlation and causality are economic variables that play vital
role. The economic tools used in empirical analysis are:
i. Observational Data
ii. Time Series Analysis
iii. Cross-Sectional Regression Analysis

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 7
 QUESTION NO. 5:-
WHAT DO YOU MEAN BY PUBLIC? DESCRIBE THEIR CHARACTERISTICS,
ADVANTAGES AND DISADVANTAGES.

1. Public Goods:
It is a commodity or service that is provided without profit/price to all the society,
either by the Government or by a Private Individual/Organizations. It is meant for the benefit of the
general public. In Economics, a public good refers to a commodity or service that is made available
to all the members of a society. Typically, these goods or services are administered by government
and paid for collectively through taxation.
Examples: Examples of public goods are:
i. Law Enforcement
ii. National Defense
iii. Rule of Law
iv. Access to clean air
v. Clean drinking water
vi. Vaccination
Characteristics/ properties of public goods:
Following are the key properties of public/ social goods:
a. Non-Rivalrous:
Public Goods are Non-Rival. Public goods have equal benefits for all the members of
society. It is indivisible. It means that one person uses a good; it does not prevent others
from using it.
b. Non-Excludable:
The Public goods are available to all members of the society. It is based on the system of
Non-Exclusion. It means that the benefits achieved from public goods cannot be kept
confined to some or few people. In other words that even those people can avail benefits
from public goods that have not paid for it. These goods are usually free of cost and can be
used by anyone without any restriction.
c. Non-Reject able:
The consumption of such goods cannot be dismissed or unaccepted by public, since it is
available to all the people.
d. Free-Ridership:
A free rider is someone who does not pay for a public good but gets benefit without paying.
These goods also benefit those who have not paid for it in the shape of taxes.
e. Externality Factor:
Externality factor found in Public Goods may be beneficial or harmful which flow from an
economic activity to non-participant in that activity.
f. Marginal Cost
Marginal Cost of a Public Good is zero or close to zero. It means that an additional member
of the society can be benefitted by its use without adding to the total cost.
g. Decreasing Average Cost
It is the characteristic of a pure public good. If the public good is provided in a small unit
then the average cost is likely to be much more.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 8
 h. Infrastructural Goods
It is primary responsibility of the State to develop infrastructure in the country.
Examples of infrastructure are Roads, Gas Pipelines, Sewerage Pipe Lines, Electricity, Water
supply etc. Their spillover effects are non-marketable‫۔‬

Different types of Public Goods:

Public Goods exists in different types. Following are the major types of public goods.
1) Impure Public Goods
Such Goods are in between Pure Public Goods and Pure Private Goods with
different features of each variety.
2) Local Public Goods Public Goods provided by a State authority within a
defined geography area consisting its territorial jurisdiction. Such goods are non-
rivalrous but have a degree of excludability
3) Club Goods
Club Goods are sub-set of local public goods which acquire conditional
excludability and become particularly rivalrous.
4) Merit Goods
Merit Goods are those goods, the consumption of which not only benefits their
consumer but also non-consumers (e.g. Education, Health)
Advantage of Public Goods:
These goods carry the mass benefit for the people. They have a broader prospective.
Following are the advantages of public goods:
i. Collective Benefit
ii. Social Welfare
iii. Free Use
iv. Basic Amenities
v. Equal Access
Disadvantages of Public Goods:
Despite several benefits there are some shortcomings of public goods as well. Some of the
major disadvantages of public goods are as under:
i. Taken for granted
ii. Excessive production cost
iii. Free-ridership problem
iv. It leads to market failure

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 9
 QUESTION NO. 6:-
WHAT DO YOU MEAN BY PRIVATE GOODS? DESCRIBE THEIR
CHARACTERISTICS, ADVANTAGES AND DISADVANTAGES.

2. Private Goods:
A private good is a product that must be purchased for consumption, and its consumption by one
individual prevents another from consuming it. In other words, a good is considered to be a private
good if there is competition between individuals to obtain the good, and if consumed the good
prevents someone else from consuming it. Private Goods are those which are produced by individual
producers in the market and purchased by individual consumers. This includes the whole process of
production, sale and purchase. This is based on market economy which settles the issues of
production and distribution of Public Goods. The Goods which are liked by the consumers are
purchased by them by paying the price. The producers in the system are aimed at maximizing their
profit by producing these goods.

Examples: Examples of private goods are:

i. Food
ii. Cloth
iii. Mobile
Characteristics/ properties of Private Goods:
Following are the key properties of private goods:
a. Rivalry:
The private products involve rivalry or competition among the consumers for its usage since the
consumption by one person will restrict its use by another. Examples include the ownership of
radio, TV, Car etc.
b. Excludable:
These goods involve cost, and therefore the non-payers are excluded from the consumption.
Clothing is an example of a private good because some people are restricted from objects of
clothing and an item of clothing can only be possessed or consumed by a single user at one
time.
c. Reject able:
Private goods can be unaccepted or rejected by the consumers since they have multiple
alternatives and the right to select the product according to their preference.
d. Traded in Free Market:
Such goods can be freely bought and sold in the market at a given price.
e. Opportunity Cost:
These goods have an opportunity, i.e. the consumer has to let go of the benefit from a similar
product while selecting a particular private commodity. For example, if we use resources to
produce a bottle of Coca-Cola, we can use that glass, sugar and water to produce other goods.
Advantage of Private Goods:
These goods have mutual benefits for the manufacturers and the consumers; both serve their
purposes through the selling and buying of such products respectively.
Following are the advantages of private goods:
i. Economic Growth:
Economic growth is an increase in the production of economic goods and services,
compared from one period of time to another. Due to sale and purchase of private goods,

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 10
 both manufacturers and consumers are benefited ultimate leading to economic growth of the
country. Both are satisfies resulting into satisfaction and thus economy of country grow.
ii. Profit Earning:
In manufacturing/ producing, private producers earn profit. The more are produced to be
sold, more would be the profit ratio. Under most circumstances, enterprises that have
achieved a high share of the markets they serve are considerably more profitable than
their smaller-share rivals.
iii. Restrict Free-ridership:
Private goods are essential to carry out trade activities for economic development. It is done
with the motive to earn profit. Such goods restrict the consumption by the people who do not
have buying power capacity, thus limiting its usage to those only who have capacity to pay.
In other words, it discourages free-ridership.
Disadvantage of Private Goods:
Despite a lot of advantages there are several shortcomings of private goods as well. Some of
the major disadvantages of private goods are as under:
i. Depletion:
Private goods are manufactured by the private sector and, therefore, they function on demand
and supply concept. These products / services go on depleting with use. Since the goods
bought by one consumer cannot be purchased by other.
ii. Discrimination:
Private goods create discrimination among the rich and poor or payer or non-payer. This
discrimination leads to class differences in society and unequal distribution of wealth and
resources.
iii. Limited Access:
Private goods limit the access of those who do not have the purchasing power. This leads to
deprivation of a major class of society from its access.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 11
QUESTION NO. 7:-
WHAT IS COMPARISON OF PUBLIC AND PRIVATE GOODS?

Comparison between public and private goods is as under:

Basis Private Goods Public Goods
1. Price Manufactured and sold by Provided for free use of people.
producers to satisfy consumer's
needs and wants.
2. Provider Provided by manufacturers. Provided by government or
nature.
3. Consumer Those who have ability to pay. General public is treated equally.
4. Quantity Reduce with the use / Readily available for all.
consumption.
5. Quality Quality vary with ability to pay or Its quality remains constant.
buy.
6. Decision It is consumer choice. Decision of public goods is social
choice.
7. Objective Objective is profit earning only. The objective is overall welfare
of the people.
8. Market These are traded in free market. These are not traded in market.
9. Opportunity There is an opportunity cost. There is no opportunity cost.
Cost
10. Ridership There is no free-ridership. Free-ridership problem exists.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 12
QUESTION NO. 8:-
WHAT ARE THE MODELS/ METHODS/ POSSIBILITIES OF EFFICIENT
ALLOCATION OF RESOURCES?

There are three models/methods/possibilities of allocation of resources.

1. Capitalistic Economy (Production/allocation of Private Goods)
In this model of resource distribution there is a single producer or group of producers who are
well aware of the amount of their resources, technology and consumer preferences. Then the
forces of demand and supply determine whether any good should be produced or not. This model
is found in capitalistic economy and lead to create a class of monopolists resulting into
unequal distribution of wealth and resources. This represents the model where means of
production and presumably economic decision making are predominantly owned by the private
sector. This model is controlled by laissez-faire policy which shows the state policy of non-
intervention and non-regulation of market mechanism.
Laissez-faire
(Laissez-faire is a French word. It is the policy of the market forces to take their own course without
interference of the Government in the market).
2. Socialist Economy (Production of Social Goods)
For this model of allocation of resources, a political process is required. The people express their
preferences for social goods through voting system but in limited extent. While the
distribution of income remains the same. There are defects in this system also. The decision is
again taken by the few people without taking into consideration of the moods and requirements
of the people and only few people benefits out of this model by free ridership mechanism and
general public remains without any benefit.
3. Mixed Economy (Production of Social Goods as well as Private Goods)
This model or policy affects the distribution of income of the community. The tax and
expenditure measures are adopted to modify the existing distribution with a view to reduce
economic inequalities and make life easy for the general public. In this way, an optimal income
distribution is brought about. This system is more efficient in allocation of resources.
4. Traditional Economy /Economic System:
It is the most ancient type of economy in the world. Vast portion of the world is still function
under traditional economic system. These areas tend to be rural, second or third world and are
closely tied to the land usually through farming.
In general, in traditional economic system, each member has a more specific and pronounced
role. Hence, these societies tend to be very close-knit and socially satisfied. However, they do
lack access to modern technologies and other amenities of life.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 13
QUESTION NO. 9:-
WHAT ARE EXTERNALITIES AND HOW THEY AFFECT MARKET FAILURE?
An externality is a cost (harmful effect) or benefit (beneficial effect) that the third parties
(individual, society) who are not part of it, bears/ gain. In other words externality has some side
effects on the individual and the society. There are positive as well as negative externalities.
Public Goods are characterized by the existence of externalities i.e. economic effects which
flow from their production or use to other parties or economic units. Such economic effects may
also be called spillover effects, neighbor-hood effects or third party effects. They arise on account
of independence of economic units via input/output relationship and may be in the form of gain or
losses, the effects may be monetary or technological.
An externality affects the price in the economy which in turn transmit their effects
to production, consumption decisions of other economic units. This causes a divergence between
the private and public cost or loss of the good in question e.g. Pollution caused by
factories, power houses, railways, transport vehicles etc. is a cost (loss) to the society but not to the
undertakings. Similarly, beneficial externalities of social overheads like roads, bridges etc.
Examples of positive externalities:
i. Vaccination
ii. Education
iii. Maintaining a good lawn in front of house
Examples of negative externalities:
i. Air and water pollution
ii. Noise
iii. Traffic
iv. Smoke (SMOG)
Market Failure:
Market failure occurs when the price mechanism fails to account for all cost (harmful
effects) and benefits necessary to provide and consume goods.
Reasons/ Causes of Market of Failure:
Following are causes of market failure:
i. Lack of public goods
ii. Under production of necessary goods
iii. Over provision of unnecessary goods
iv. Abuse of monopoly
When market fails the government usually intervenes depending upon the reason for the market
failure.
Cures/ Remedy/ Solution of Market of Failure:
Following are cures/ remedy/ solution of market failure:
i. Legislation
ii. Direct provision of goods in demand
iii. Taxation management
iv. Sin Tax
v. Subsidies
vi. Tradable permits
vii. Extension of property rights
viii. Awareness through advertisement
ix. International Cooperation

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 14
Effect of Externalities on Market Failure:

a) Market economy (capitalism) depends on maximizing profit and producers are reluctant to
allocate their resources for general welfare programs like libraries and diseases eradication
programs leads to market failure.
b) In market economy, monopoly system prevails where consumers are over-charged and labor
rates are paid less, result into the market failure.
c) Due to externalities, social costs arise against which the consumers and producers had not
paid any payment.
d) In capitalistic economy, income and wealth concentrates in few hands and distribution of
income remains static, which is not appropriate.
e) Market forces have failed to handle many macro-economic issues like inflation, un-
employment, capital formation, technology, trade gaps, foreign exchange etc. All these
issues to be solved is beyond the capacity of the market forces, leading to market failure.
f) Free Ridership. As public goods are non-excludable, it is difficult to charge the people for
benefitting from a public good or service once provided, leads to free ridership.
Hence, remained under supplied and cause market failure.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 15
 Chapter No. 2
BUDGET
QUESTION NO. 10:-
DEFINE BUDGETING. GIVE ITS IMPORTANCE AND ALSO DISCUSS
STRUCTURE OF BUDGETING IN PAKISTAN.

Definition: -
Government Budget is a financial statement of estimated receipts and disbursements
together with their breakup for a given period (say, one year) showing the policies associated
with the proposal relating to these receipts and disbursements. (Definition by Dr. H.R. Bhatia)

Basic Concepts/Philosophy/Characteristics/Properties of Budgeting

A Government has to perform three basic functions.
a. Economic Stability
In economic stability, economic revival is concerned with the removal of inflation,
deflation, and unemployment.
b. Economic Growth
Economic Development is concerned with economic growth, which is aimed at
promoting means of irrigation, energy, communication network, increasing the
agricultural and industrial production.
c. Economic Welfare
It is concerned with providing and extending the facilities concerned with
education, health, housing, water, law and order and other civic amenities.

In earlier days/times, a budget just represented the revenue and expenditure estimates of
Government during a year. But now a days, in addition to revenue and expenditure estimates, it also
represents different monetary and fiscal measures taken and their effects on economy. The budget
also shows the effects of budget when changes are brought about in Government
expenditures, taxes and subsidies.

Importance of Budgeting

a. Budget is a “Tool” for implementing policy decisions.

b. Budget analyzes policy decisions.
c. It ensures delivery of Public Service.
d. It keeps in meeting socioeconomic objectives.
e. It helps in tackling poverty related issues.
f. Budget helps in performance evaluation of Government performance.
g. It helps in controlling the expenditure.
h. It helps in giving direction of Public Expenditure to obtain maximum social
advantage.
i. It shows the master planning of the country.
j. It gives advance warning of problems.
k. It enhances managerial perspective and capacity.
l. It gives co-ordination of activities among different ministries/departments.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 16
QUESTION NO. 11:-
GIVE CONCEPT OF THE FOLLOWING:
1. Structure of Government Budgeting
2. Annual Budget Statement
3. Revenue versus Development Budget
4. Development versus Non-Development Budget
5. Surplus Versus Deficit Budget, Balance budget
6. Budget constraints and Budget adjustments

1. Structure of Government Budgeting:

Budget is a two way book keeping having revenue on one side and expenditure on
the other side. The Government revenue represents Government incomes. The Government
revenues consist of tax revenue, non-tax revenues and surcharges. The tax revenues
comprise direct and indirect taxes while non-tax revenues are based on the incomes earned
by the different government departments. The surcharges are levied on Gas, Electricity,
Petroleum, Sanitization etc.
The Government expenditure consists of:
a. Non Development/Current/Permanent/Recurring
b. Development Expenditure/Non-Recurring/Temporary

2. Annual Budget Statement (ABS):

Annual Budget statement generally known as Budget is presented according to the
governing laws given in the various articles of the Constitution of Pakistan 1973.
The Federal Government shall, in respect of every financial year, cause to be laid
before the National Assembly, a statement of the estimated receipts and expenditure of the
Federal Government of that year, in this part refers to as Annual Budget Statement.
The Annual Budget Statement (ABS) shall show separately:
a. The Sums required to meet expenditures described by the constitution as
expenditures charged upon the Federal Consolidated Fund and
b. The sums required to meet the other expenditures proposed to be made from the
Federal Consolidated Fund.
Article 81 of the Constitution of Pakistan:
The following expenditure shall be expenditure charged upon the Federal Consolidated Fund: —
a) the remuneration payable to the President and other expenditure relating to his office, and
the remuneration payable to-
i) the Judges of the Supreme Court [and the Islamabad High Court];
ii) the Chief Election Commissioner;
iii) the Chairman and the Deputy Chairman;
iv) the Speaker and the Deputy Speaker of the National Assembly;
v) the Auditor-General;
b) the administrative expenses, including the remuneration payable to officers and [staff], of
the Supreme Court, the Islamabad High Court, the department of the Auditor General, the
Office of the Chief Election Commissioner and of the Election Commission and the
Secretariats of the Senate and the National Assembly;]
c) all debt charges for which the Federal Government is liable, including interest, the
repayment or amortization of capital, and other expenditure in connection with the raising
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 of loans, and the service and redemption of debt on the security of the Federal Consolidated
Fund;
d) any sums required to satisfy any judgment, decree or award against Pakistan by any
court or tribunal; and
e) Any other sums declared by the Constitution or by Act of [Majlis-e-Shoora (Parliament)]
to be so charged.

3. Revenue versus Capital Budget:

Revenue Budget consists of revenue receipts and revenue expenditures of the government.
On the other hand, Capital Budget or Development Budget consists of capital receipts and capital
payments.
Revenue budget includes all such financial transactions which do not create assets or
liabilities. Contrarily, transactions of Capital Budget do create assets and liabilities of Federal
Government.
a. Tax Revenue:
Following are major sources of tax revenue for Federal Government in Pakistan:
1. Income Tax
2. Sales Tax
3. Custom Duty
4. Excise Duty
5. Other duties that Federal Government may levy.
b. Non-Tax Revenues:
Following are sources of non-tax revenues for Federal Government in Pakistan:
1. Fee
2. Income from Investments
3. Judicial Receipts
Revenue Expenditures:
It is the payment incurred for the normal day to day running of government departments
and various services that it offers to its citizens. It has other expenditures like servicing of interest
on borrowing, subsidies, grants given to provincial governments etc.
This expenditure does not result in creation of assets. The difference between the revenue
receipt and expenditure is usually negative. This difference is called revenue deficit.
4. Development versus Non-Development Budget:
Following are major differences between Development and non-development budget:
Development Budget Non-Development Budget
 It helps in economic development of  It does not directly help in the economic
the country directly. development of the country.
 Social and community services,  Defence expenditure, police, pension, loan
economic services and developmental repayments, cost of tax collection, non-
assistance to states are included in it. development assistance to states etc. are
included in it.
 Developmental expenditure has a  It is not possible to fix the targets and
definite objective to achieve during achieve it under non-developmental
the plan period. expenditure.
 The share of developmental  The share of Non-Developmental
expenditure is gradually decreasing. expenditure is gradually increasing

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 Development Budget Non-Development Budget
 This expenditure adds to the flow and  This expenditure is essential for
production of goods and services in administrative purpose of the country
the country
 It is not a regular feature i.e. non-  It is a regular and recurring feature
recurring expenditure

Objectives of Development Budget:

The public sector development generally tailored to achieve the following objectives:
i. Accelerating economic growth
ii. Reduction in poverty
iii. Balanced regional, gender and minority development
iv. Consolidation of existing infrastructure
v. Improvement in public service delivery in education, health, water and sanitation sector and
enhancement in their coverage

5. Surplus Versus Deficit Budget, Balance budget:

There are three types of budgets
a. Balanced Budget:
If Government revenues are equal to Government Expenditures, the Budget is
called balanced budget. A balanced budget is a condition in financial planning or the
budgeting procedure where the total revenues are equivalent to or greater than the total
expenditure. A budget can be considered as balanced in experience after a complete year’s
account of revenues and expenses have been recorded. A company’s budget for the
upcoming year can be called balanced based on anticipations or approximate values.
b. Surplus Budget
A surplus budget is a condition when incomes or receipts are more than costs or
outlays (expenditures). A surplus budget normally refers to the financial conditions of the
governments. However, individuals choose to use the term ‘savings’ rather than ‘budget
surplus.’ Surplus is a manifestation that the government is being effectively operated and
regulated.
c. Deficit Budget
A deficit budget is when expenses exceeds the revenue If the Government
Expenditures are more than Government Incomes, this situation represents budget deficits.
To meet this deficit, Government has to depend upon loans, printing of currency, new taxes
are imposed or the rate of existing taxes are increased. As a result, the Government receipts
may be equal to Government expenditures. In order to meet budget deficits, Government
has to depend upon public debt.
6. Budgetary Constraints and Budgetary Adjustments:

1. Budgetary Constraint:
a. A budgetary constraint is something that limits or controls that you can do.
b. A budgetary constraint occurs when a consumer is limited in consumption pattern of a
certain income
c. A budget constraint is an economic term referring to the combined amount of items you
can afford within the amount of income available for you.
Constraints in a Development Project:
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 i. Budget Constraint
ii. Time Constraint
iii. Scope Constraint
iv. Quality Constraint
v. Technology Constraint
vi. Skill Labor Constraint
2. Budgetary Adjustments:
A budgetary adjustment is used to record both income and expenditure transactions that
charge against an existing budget.
Budgetary adjustments are made because the unit / organization/ government have changed
its plan for allocating its budget. They may adjust their operating budget according to their
priorities.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 12:-
WHAT IS THE LEGAL FRAMEWORK OF BUDGETING IN PAKISTAN?

Introduction:
In Pakistan, the annual budget statement (generally known as budget) is presented
according to the governing laws given in the various articles of the constitution of Pakistan, 1973.
Although a bill can be originated either in the national assembly or in the senate, the money bill
can only be originated/ tabled in the national assembly and after it’s passing by the parliament, it
is approved by the president of Pakistan within thirty days of its passing to make it a law.
Articles of the Constitution of Pakistan, 1973, relating to the budget are as under.
I. Article 73
Procedure with respect to money bills-when a money bill, including a finance
bill (Budget) containing the annual budget statement, is presented in the national
assembly, a copy thereof shall be transmitted to the senate which may, within fourteen
days, make recommendations thereon to the national assembly. The National
Assembly may consider the recommendations of the senate but it is not binding.
II. Article 77
According to this article, tax is to be levied by law only. No tax shall be levied for
the purposes of the Federation except by or under the authority of act of the Parliament.
III. Article 80
This article relates to the Annual Budget Statement (ABS). The Federal Government
shall, in respect of every financial year, cause to be laid before the National Assembly, a
statement of the estimated receipts and Expenditure of the Federal Government of that
year, in this part refers to as Annual Budget Statement.
IV. Article 81
It relates to the expenditure, which is met from (charged upon) the
Federal Consolidated Fund.
V. Article 82
It is related to expenditure charged upon the Federal Consolidated Fund, may be
discussed, but shall not be submitted to National Assembly for voting.
VI. Article 83
It is about the authentication of Schedule of Expenditure by the Prime Minister.
VII. Article 84
It is about the supplementary & excess grant and the procedure of it is to be laid-down
before the National Assembly for approval.
Areas Require Reforms
In Pakistan and elsewhere, there are at least three obstacles in improving the
transparency of budget process:
a) Weak Citizen’s Involvement
b) Limited Parliamentary Debates
c) Unavailable & Opaque information on Budget

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 13:-
WHAT ARE THE METHODS OF PUBLIC BUDGETING?

I. Incremental Budgeting
In this technique, previous year’s cost level is used as base then to prepare the present
year’s budget, by carrying the previous year’s inefficiencies, short comings. Budget
is adjusted by incremental way taking into consideration inflation, economic growth, deficit
financing, luxuries and other factors that have barring in the economy of the country. This
technique is used commonly by many poor countries.
II. Zero Based Budgeting
Budgeting where the programs and target of Government budgeting are firstly determined
and then the resources are discovered for such programs. Therefore, in such budgeting
programs and schemes are not excluded because of shortage of resources. Rather here such
programs are prepared which have economic as well as social justification, even the
financial resources of the Government are zero.
Methods/Stages of Zero Based Budgeting
a) Re-analysis of the activities of running programs
b) Alternatives of running programs will be analyzed
c) Determining the priorities
d) Determination of objectives
e) Reallocation of resources from less important priorities to more important one
f) When the list of programs is finalized, then go for raising the resources
Properties of Zero Based Budgeting
i. The running and new programs are analyzed from a new point of view and their
re-justification is presented.
ii. Low priority activities are dropped
iii. The policy makers have to choose programs on the basis of merit
iv. It leads to “face-to-face” discussion between the chiefs of different departments
and policy makers.
Advantages of Zero Based Budgeting
i. It comprises a complete survey of priorities, objectives and targets
ii. Projects are analyzed in greater depth, hence the cost effectiveness can be
properly implemented
iii. The budget makers and the planners share effectively. As a result, a better co-
ordination amongst them comes into being
iv. All the activities and functions of projects are completely analyzed and the
projects where the costs are more than their benefits, they are dropped. In this
way budgets can be reduced to the large extent.

III. Program Budgeting

Programs budgeting need a system or procedure of budget where firstly the targets or
objectives of the economy are formulated, then the targets/objectives are selected. These
targets/objectives are correlated with the long term planning. The management of the
operations of programs is made to control over costs and finally the results are analyzed.
Scope of Program Budgeting
a. It is concerned with the wide range of objectives i.e. the identification of objectives.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
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 b. It is attached with the policy, which program should be initiated first.
c. How and where the selected programs be started. It means that the program
budgeting has been associated with planning.
d. This helps in program control and management performance.
e. It helps in selecting the natural activities in accordance with the need of the
economy.
f. It leads to performance budgeting system.
Properties of Program Budgeting
a. Setting of objectives according to national goals.
b. Translating objectives into programs.
c. It has incremental development.
d. It involves analytical techniques.
e. It involves the role of various agencies (like Ministry of Finance, ECNEC, CDWP,
Planning commission, Economic Affairs Division, then Administrative
Departments, and Auditor General of Pakistan).
f. Program budgeting also involves Legislative process.
g. Program Budgeting involves better execution and review.

IV. Medium Term Budgetary Framework (MTBF)

Medium Term Budgetary Framework is defined as those fiscal arrangements that allow
Government to extend the horizon of fiscal policy making beyond the annual
budgetary calendar. Now the budget is prepared for three to five years instead of one year.
Main Objectives of Public Financial Management
i. Fiscal Discipline:-
Giving some degree of predictability to the spending agency while ensuring overall
fiscal discipline
ii. Strategic Prioritization:-
Strategic Prioritization improves the quality of budget which will lead to account for
value for money of Public Spending
iii. Operational Efficiency:-
It strengthens budget management
These objectives are now fulfilled through Medium Term Budgetary Framework.

Objective of Medium Term Budgetary Framework

a. To further strengthen fiscal discipline in the management of the budget.
b. To strengthen the alignment of budgetary allocation within the policies and
priorities of the country.
c. To strengthen the process of budgeting and budget resource management to ensure
efficiency and cost-effectiveness of the use of public sector resources in the
delivery of Public Services.
d. To make the budget a flexible and responsive mechanism (for carrying forward the
policies, strategies and priorities of the Government.
e. To provide the maximum achievable level of resource flows.
f. To shift the role of the central agencies (Ministry of Finance and Planning
Commission) in Budget management from micro management of transactions to
strategic management of the application of resources to achieve results.
Medium Term Budgetary Framework can support the main objectives of Public Sector
Financial Management if applied in true spirits and will render it result oriented.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 14.
WHAT IS FISCAL POLICY? DESCRIBE ITS MAIN OBJECTIVES,
INSTRUMENTS AND LIMITATIONS.

Definition
Fiscal policy is a discipline that deals with arrangements which are adopted by Government
to collect revenues and make the expenditure, so that social and economic stability can be
achieved.
Fiscal Policy/Budgetary Policy/Expenditure Policy is a comprehensive term covering all
policy, procedural and other dimensions of budgetary operations of the Government. Its contents
need to be chosen judiciously so as to avoid their contradictory pulls and for consistency with
policy goals. There is no universally acceptable format of fiscal policy. It varies from country to
country and from time to time. The fiscal policy may ne specifically designed to ensure: economic
stability, accelerate economic growth and improve distributive justice.
Main Objectives/Functions/Roles of Fiscal Policy
a. Economic Development
b. Raising Level of Employment
c. Influencing consumption pattern
d. Price Stability Re-distribution of income
e. Removal of deficit in balance of payments
f. Social justice
Instruments/Elements/Tools of Fiscal Policy
a) Taxation
b) Incidence of taxation
c) Deficit Financing
d) Un employment
e) Government Expenditure
f) Subsidies
g) Transfer Payments
Limitations/Inefficiencies/Practical Problems/Criticism/Complications of Fiscal Policy
1. Problem of Timing (Uncertainty in time required)
i. Recognition Lag (identification of time period or how much time is required)
ii. Administrative Lag. It means difficulties to implementing decisions
iii. Operational Lag. Consequences of fiscal policy that is required in implementing the
operations
2. Political Measures
The success of Fiscal Policy depends on political considerations of the country
3. Crowding Effect (a policy due to which private sector id discouraged)
4. Discouragement of the open economy

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 Chapter No. 3

PUBLIC REVENUE, TAX CRITERIA, TAX INCIDENCE

QUESTION NO. 15:-

DEFINE TAX. HOW THE GOVERNMENT COLLECTS ITS REVENUE FROM
DIFFERENCE SOURCES?

Every Government needs funds to finance its activities. Funds may be raised from various
sources. Following are the main sources of revenues (funds, incomes) of any Government:
a. Taxes
b. Interest Receipts
c. Income from currency
d. Borrowings
e. Sale of Public Assets
f. Income from Public Undertakings (Business concerns/business units)
g. Fee
h. Fines
i. Gifts
j. Donations
Meaning of Tax
a) Literal meaning of tax.
Literal meaning of tax is a burden.
b) General Definition of tax.
It is a compulsory contribution of wealth and levied upon persons by the State to meet
the expenses incurred in providing common benefits for its people
c) Statutory Definition of tax.
Tax means, any tax imposed under chapter 2, includes penalty, fee or other charge
or any sum or amount levy-able or payable under Income Tax Ordinance, 2001.
Difference between tax and fee
Taxes are compulsory levy and it is the legal obligation of the persons of a State to pay the
amount of tax which is required to pay under the law. The tax payer cannot claim any return in
lieu of paid tax. On the other hand, a fee is a payment of discretion of any person to pay or not to
pay. When a fee is paid, the paying person becomes entitled to claim counter benefits.

Types of Taxes
1. Direct and Indirect Taxes
Direct tax is such a tax which has to be paid by the person upon whom it has been
imposed. The person of such tax cannot shift the burden of this tax to somebody else e.g.
Income, Tax, Wealth Tax, etc.
Advantages/Benefits of Direct Taxes
Following are the benefits or advantages of Direct Taxes.
a) It creates civic sense.
b) It is easy to collect.
c) It is in accordance with the principle of equity because the rich have to pay such tax
while the poor are exempted.
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 Demerits of Direct Taxes
a. The direct taxes are imposed on incomes, hence they are difficult/ complex for the
tax payer to calculate.
b. They fall prey to evasion.
c. Due to complexity of calculation, it creates a lot of inconvenience to the tax payers.
d. People are always busy in concealing their income.

An Indirect Tax is one, which has to be paid by the person upon whom it has not been
imposed. It means, the payee of such tax can shift the burden of such tax to somebody
else e.g. Custom Duty, Sales Tax, Excise Duty etc.
Advantages of Indirect Tax
a. It is easy to pay indirect taxes because the tax payers pay such taxes along-with the
price of the good.
b. The payment of indirect taxes cannot be avoided. Thus the revenue from indirect
taxes is certain.
c. These taxes are flexible. With the help of indirect taxes, the use of unnecessary and
injurious goods can be discouraged. Therefore, such taxes become helpful in raising
social welfare.
d. Indirect taxes are imposed on all segments of the society, therefore, each section of
the society contribute in tax revenue.
Demerits/Disadvantages of Indirect Taxes
a. The indirect taxes are of consumption nature. Therefore, their burden is mostly felt
by the poor class. It is because the poor and the rich have to pay the same amount of
tax.
b. Indirect taxes increase the prices of goods ultimately reducing their demands.
c. The indirect taxes increase the inflation in the economy. Thus, they are the source
of social dissatisfaction.
d. The indirect taxes do not create civic sense.
2. Proportional and Progressive Taxes
Proportional Tax: A proportional tax is one in which the rate of tax remains same for all
sizes of income or expenditure. If all the tax payers, whether their incomes are low or
high, are required to pay 10% of their income as tax. It will be called proportional tax. In
Pakistan, customs and excise duties are mostly proportional tax.
Merits of Proportional Tax
a. It is simple to understand and apply.
b. Calculation of this tax is easy.
c. It is easy to justify i.e. it appeals to common logic that if a person buys one packet
of cigarettes, he pays five rupees of tax and when he buys ten packets, he pays ten
times more tax (50 rupees).
d. The amount to be collected through proportional taxes is most certain.
Demerits of Proportional Tax
a. It does not confer to the principle of equity.
b. A poor person buying salt pays the same rate as the rich person. Rich feels lower
burden.
c. The amount collected through this tax is relatively smaller.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 26
 d. This tax is less flexible.
Progressive Tax: in which the rate of tax rises with the increase of size of income. In
Pakistan, income tax and wealth tax are progressive taxes.
Merits of Progressive taxes
a. It is equitable and conforms to the principle of taxation that is equality of sacrifice.
b. It is productive because it brings more money than the proportional tax
c. It is economical, as the cost of collection of this tax doesn’t increase with increase in
the rate of tax.
d. It helps to decrease inequality in distribution of income.
e. It increases the collective welfare of the community, because more money is
collected from the rich for whom its utility is less and it is spent on the poor for
whom utility of money is quite high.
Demerits of Progressive taxes
a. If the degree of progressive of tax is sharp, it discourages savings and investments
b. It is arbitrary. Different economists suggest different rate of progression.
c. It is very inconvenient for the tax payer.
d. It is based on the assumption that equal incomes, equality and utility of money,
however, this assumption is incorrect since the tax payers with same income
get utility according to their circumstances.

3. Specific and Ad valorem Taxes

Specific Tax: when any good is taxed on the basis of its measures, size and weight, such
tax is given the name of specific tax. For example, if excise duty is imposed on sugar with
respect to its weight or excise duty is imposed on the cloth on the basis of meter or yards,
it will be a specific tax.
Merits of Specific Tax
a. Specific tax is advantageous because it can be easily imposed and charged.
Demerits of Specific Tax
a. They are not beneficial because they are burden for the poor
Ad Valorem Tax: When any commodity is tax on the basis of its value, it is given the
name of ad valorem. In such case, the taxed is imposed on the basis of value of the product
and not on the weight or the size of product. For example, all those cars having value
rupees 10 lac, if they are taxed 100% custom duty, it will be ad valorem tax.
Ad valorem tax is beneficial in the sense that its burden lies with the rich, hence, it is in
accordance with the canon of equity but the compilation of this tax is difficult to find out
the exact value of the goods. The importers and businessmen do not show the exact value
of goods in order to avoid tax.

4. Value Added Tax (VAT)

The value added tax is concerned with the family of sales tax. The value added tax is not
imposed on full value of the good(s) sold but it is levied on each addition in the value of a
good. Thus the seller pays the tax on net value of the product which he has to face in its
preparation or improvement, not on the gross value of the product. In other words, value
added tax is a sales tax which is imposed on the value which is obtained by subtracting the
purchase value of product. It is important to note that the gap between the revenues of the
firm and cost of the firm which he has to pay regarding inputs etc. is called value added
tax.
Merits of Value Added Tax
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 a. It remains neutral in its effects on sale and production because such tax is imposed
just on the net addition.
b. As a result of value added tax, there are minimum chances of tax evasion.
c. These taxes are helpful in promoting a country’s export.
Demerits of Value Added Tax
a. It is complicated tax system.
b. This tax could be imposed properly, if firms properly prepare their accounts.
c. The success if such tax lies in the close cooperation between firms, tax machinery
and Government which is next to impossible.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 16:-
WHAT ARE CANONS / PRINCIPLES/ RULE OF TAXATION.

Canons/Principles/Rules of Taxation
a. Simplicity
This principle states that taxation system should be plain and easily understandable
by the tax payer
b. Convenience
The convenience of tax payers as well as tax collector must be the bottom-line of
any tax system. The time of payment of taxes, mode of collection of taxes should be
convenient to the tax payers.
c. Certainty
This canon suggests that the amount of tax payment should be certain and there
should not be any confusion with respect to the amount of tax to be paid by tax
payer.
d. Judicious
The taxation should be based on the principle of equity, fair play and all known
principles of natural justice.
e. Capacity to pay
This principle suggests that taxation system must be based keeping in view the
capacity to sacrifice by the person on whom the tax is levied, those who have more
income should pay taxes at higher rates and those who have low income, they
should pay taxes at low rates.
f. Benefit Principle
This principle suggests that tax should be levied according to the benefits derived
by the persons from the State.
g. Business Friendly
Taxation policy should be such as to boost business atmosphere and not
discouraging the investment environment.

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Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 QUESTION NO. 17:-
DESCRIBE BENEFITS RECEIVED THEORY AND CAPACITY TO PAY THEORY.
OR
WHAT IS THE CRITERIA OF TAXATION OR THEORIES OF TAXATION?

Economists have presented different criteria or theories of taxation from time to

time. Following are the important theories of tax collection.
I. Benefit received theory
This theory stated that the people are benefitted with the facilities provided by the
Government. Thus when the people get advantage, they must pay something back to
Government in return. Government must keep in view the advantages/facilities which the
people will get against the provision of facilities while taxing.
Merits of Benefit Received Theory
a. The exchange relations require, if we get gain from anybody, we must also make
any payment in return which is a tax here.
b. As there exists proportionality between tax burden and the use of public
goods, here it is in accordance with the canon of equality.
c. When anybody pays tax in accordance with the benefit received, he will keep an eye
on the quantity of services provided by them, thus the tax payer will keep in his
mind the entire picture of Government Budget.
Demerits of Benefit Received Theory
a. The benefits which arise due to the provision of public services, cannot be properly
measured.
b. This theory cannot be associated with the provision of social services. The
Government should not follow the mercantile approach while providing the
education and health facilities.
c. The gains accrued from social goods cannot be measured because people use them
collectively and we don’t have a measure which could be applied to measure the
total benefits.
d. If we keep in view this theory, the scope of state activities will be limited.
II. Capacity to Pay Theory/Ability to Pay Theory
This theory stated that while taxing, Government must keep in view the capacity of the
people to pay tax. The capacity to pay theory depends upon:
a. The consumption of tax payers.
b. Income of tax payer.
c. Wealth of tax payer.
This analysis is based upon horizontal type of equality.
Merits of Ability to Pay Theory
i. It works well, if it is coordinated with economic and legal framework of the country
otherwise, this system is not useful.
Demerits of Ability to Pay Theory
a. It is not practicable.
b. It may lead to tax evasion.
c. It is a complicated tax system.
Conclusion
It is said that tax policy is an art where equity can be discussed relatively rather
absolutely.
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 QUESTION NO. 18:-
DEFINE INCIDENCE, IMPACT AND CRITERIA.

I. Tax Incidence
Tax incidence means tax burden. Taxes are not always borne by the people who pay them
in the first instance. They are sometime shifted on the other people. Incidence means the final
resting place of a tax. Thus, incidence is on the man who ultimately bears the money burden of the
tax.
New concept of incidence
To determine as who bears the money burden of the tax, is the conventional/traditional
meaning of incidence. But modern economists have introduced new concepts of incidence means
the changes brought about income distribution by changes in budgetary policy i.e. changes both in
taxes and public expenditure.
In the conventional sense, incidence refers simply the money burden of a tax but the new
concept refers simply to distributional changes resulting both from taxation and
public expenditure.
II. Impact
The term impact is used to express the immediate result of original imposition of the tax.
Thus, the impact of tax is on the person whom it is imposed.

Distinguish between Incidence and Impact

i. Impact refers to the initial burden of the tax, while incidence refers to ultimate burden
of the tax.
ii. Impact is the first point of imposition, incidence occurs at the final point of the
settlement.
iii. The impact of a tax falls upon the person from whom the tax is collected and the
incidence rests in the person who bears/pays it eventually.
iv. Impact may be shifted but incidence cannot. For incidence, it is the end of shifting
process. Sometimes, when no shifting is possible, as in case of income tax or such other
indirect taxes, the impact coincides with incidence on the same person.

III. Criteria of Tax Incidence (Theories of Tax Shifting/Tax Incidence)

There are three most popular theories of tax shifting:
a. Concentration Theory
b. Diffusion Theory
c. Demand and Supply Theory
All these theories are based in the assumption that the means of incidence shifting is that
of sale/purchase transactions.
i. Concentration Theory
This theory focuses on that incidence of a tax must finally rests on
“surplus”. Experts of this theory claims that only agriculture could produce
an economic surplus which was appropriated by the land lord in the form of land
rent. And any tax imposed anywhere would eventually be paid out of land rent.
Later, classical economists recognize the existence of an economic surplus in the
form of profit incomes as well. And depending upon the form of tax levied, the
incidence could shift to profit income as well.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 ii. Diffusion Theory
This theory asserts that interdependence of economic units, higher than
subsistent wage rates, and an element of “rent” in the short term earnings of every
factor collectively results in a complete diffusion of tax incidence throughout the
economy. This conclusion, however, do not negate the need for tracing the process
of shifting of the tax incidence and using the gained information for policy
purposes.
iii. Demand and Supply Theory
It is the most popular theory in academic and administrative circles. According to it,
the incidence of a tax is shared between the buyers and sellers of the tax items in the
ratio of its supply and demand elasticity.

Factors determining the incidence

The incidence of a tax or where its ultimate burden rest, depends upon a number of factors.
1) Demand and supply elasticity
2) Price of the item
3) Time of Purchase
4) Cost of items/commodity
5) Nature of tax
6) Market form

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 19:-
WHAT ARE THE EFFECTS OF TAXATION ON ECONOMY?
Introduction:
According to classical economists, purpose of taxation was to raise government revenue but
with the passage of time, circumstances changed. Now, the taxes are considered to attain economic
objectives in addition to raise revenue for the government. These taxes are used to influence the
consumption, production, and distributional activities of the economy. The taxation system can
influence the production and distribution of income also. Therefore, while framing its tax policy, a
government has to see the effects on consumption, production, allocation and distribution of
income.
Effects of Taxation:
Following are effects of taxation on the economy:
i. Taxation affects the “ABILITY” to work, save and invest by decreasing purchase
power:
Taxes badly affect the three above mentioned areas. It will reduce the incentive for
people to work. When the saving of people is reduced, then the investment will also
ultimately drop.
ii. Taxation reduces “WILL” to work, save and invest:
If government imposes tax on such income which has been hard earned by the people
against some work, it will reduce their incentive to work more and earn more for the
dependents, he will have to work more. This will reduce his efficiency and power to
work, saving will be dropped and investment will also suffer. If businesses are taxed,
people will prefer to keep money in the form of land (plots), gold, hoarding of grains
and real-estate property.
iii. Taxation reduces resources allocation between different trades and regions:
With the help of tax policy, the government may divert the scarce resources in the
productive uses. In this way, the taxation system can not only affects the productive
activity and redirect the resources where needed/ under developed areas and industries
but also imposition of taxes on rich and exemptions to poor people may reduce the gap
between two segments of the society.
iv. Taxation affects distribution of wealth:
Taxes may be used to remove inequality to income distribution. If the progressive
system of taxation is applied the rising wealth of the rich can be taken away by the
government and such wealth can be used for the social welfare of the common man.
v. Taxation affects employment:
Investors are given a lot of concession and facilities in order to promote employment.
The government may spend taxes on the productive fields which will have positive
effects on raising the level of employment in the society.
vi. Taxation affects social welfare:
It has both positive and negative effects. Taxes affect general welfare of the people. By
the imposition of taxes welfare of the people comes down. The direct taxation leads to
decrease an individual’s satisfaction whereas indirect taxes lead to further decrease in
satisfaction of the individual. However, if the government imposes tax on the industry
which produce injurious goods like cigarette, wine etc. the social effects will be
positive. However, if taxes are imposed on those goods which are found responsible for
creating environment pollution, these taxes will lead to increase in social welfare.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 20 :-
WHAT ARE TAX EXPENDITURES? WHAT ARE TYPES, MERITS AND DEMERITS OF
TAX EXPENDITURES?

Meanings of Tax Expenditures:

Tax expenditures are government revenues / losses by tax exclusion, exemptions,
deductions, credits, deferrals, and preferential tax rates. They are counterpart to direct expenditures
in that they both are form of government spending.
Definition of Tax Expenditures:
Tax expenditure is defined as a departure from the default tax code (manual) that decrease
the total taxes paid/ collected.
Types of Tax Expenditures:
Tax expenditures are revenue losses attributable to tax provisions. There are three main
types of tax expenditures:
i. Exclusion, exemptions and deduction from gross personal and corporate income.
ii. Preferential tax rates for certain programs.
iii. Refundable and non-refundable tax credits.
Tax Expenditure Analysis:
It seeks to inform tax policy makers about their taxation policies. Following complementary
evaluation approaches are available in tax expenditure analysis:
i. Estimating the budgetary cost of tax measures that deviate from the benchmark tax.
ii. Assessing their effectiveness with respect to their goals.
Tax expenditures play an important role in databases about tax policy. They represent
places where the federal tax system deviate from the theoretical ideals, eliminating tax
expenditures can end distortionary references, reduce tax complexity and provide revenue
to finance tax reform.
Tax Expenditures Reporting:
Tax expenditure reporting is an essential feature of fiscal transparency and good
governance. It is important for informed decision making and evidence-based judicious policy-
making. Tax expenditures reporting are a part of good practices of fiscal management in many
countries of the world and is usually published as part of Annual Budget Statement of the
government. The most prominent aspect of tax expenditure reporting is estimation of cost of each
tax expenditure i.e. to quantify revenue losses due to tax incentives and other departures from a
“bench-mark” tax system.
The benefit and importance of analyzing, documenting and reporting tax expenditure is well
established. It highlights several reasons for which reporting of tax expenditure is required.
Following are a few prominent reasons:
a. Input to cost benefit analysis
b. Accountability
c. Equity
d. Efficiency
Merits of Tax Expenditures:
Following are the major benefits of tax expenditures:
i. Strong political appeal
ii. Welfare of the people
iii. Incentive to the people / industry
iv. An alternative for government to intervene in economy
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 34
 v. Promote private sector participation in the economy
Demerits of Tax Expenditures:
Despite several merits following are a few shortcomings of this system as well:
i. It harms the efficiency and effectiveness of the tax system.
ii. Revenue loss to the government.
iii. Tax base becomes narrow.
iv. Inequalities are created among the tax payers.
v. It benefits only to the high income groups.
vi. It is a less transparent system.
vii. Exemptions are misused through frauds.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 35
 Chapter No. 4

PUBLIC EXPENDITURE
QUESTION NO. 21:-
DESCRIBE CONCEPT AND NATURE OF PUBLIC EXPENDITURE AND WHAT
IS THE CLASSIFICATION OF PUBLIC EXPENDITURE?

Concept and nature of Public Expenditure

When the institution of Government is formed in a state, it has to perform so

many functions. These functions may comprise law and order to social welfare and
economic development. The expenditure so made by the Government to carry out all such
functions is simply known as Government Expenditures.
Now a days, the Government expenditures have been decentralized. As a
result, Governments have distributed their functions at federal/central, provincial and local
levels. Therefore, the present day Government expenditures consist of the expenditures of
Federal Government, Provincial Governments and Local Governments. These expenditures
are made by Governments to provide the facilities of law and order, promote welfare of the
people and attain economic development of the country.
This was the old concept and now it has been transformed into the concept of welfare
state. In this concept, Governments give priority to their citizens. For this purpose, they are
spending a lot on the items like health, education, housing, employment and the
compensatory schemes in addition to the expenditures for law and order, economic stabilization,
social welfare and economic development. All these expenditures made so are called
Government expenditures.

Classification of Public Expenditure

The classification of Government Expenditure is associated with the functions, the
Government performs. Thus the classification of Government expenditure is made on the basis of:
a. Benefits
b. Functions
c. Revenues
d. Importance
I. Classification based on benefits
The Government expenditures are aimed at providing benefits to the people. Therefore, the
classification is based on the basis of benefits received by the people;
a. Those expenditures which lead to overall benefit of the society. These types
of expenditures include law and order, administration, legislation, justice,
education, health and transportation. All these expenditures are concerned with the
whole society.
b. Those expenditures which lead to specific people. The Government makes such
expenditure to provide protection and justice in the form of police. The benefits are
available to the whole society. But the advantages of these services are particularly
availed by the weak and feeble segments of the society. As they require
greater protection than rich.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 36
 c. The expenditure consisting financial protection to unemployed, social security to
the labor, shelter to the homeless and pension to the retired and old people.
d. Expenditure made to benefit some particular group of society e.g. subsidies in the
field of agriculture, housing sectors etc.
II. Classification based on functions
On the basis of classification, Government expenditures are divided into three types.
i. Protective functions expenditure
These expenditures are made by Government in order to purchase arms for
military and police.
ii. Commercial expenditure
These expenditures are made by the Government to provide so many commercial
services e.g. canals, roads, bridges and railway stations.
iii. Social function expenditure
These expenditures include expenditures on health, education, sanitation etc.
III. Classification based on revenue
In this classification, Government expenditures are divided into four sub-heads:
a. Expenditure which leads to direct return
b. Expenditure which give rise to indirect returns
c. Expenditures which result in partial returns
d. Expenditures which produce full returns
IV. Classification based on importance
It has two types
a. Basic expenditure
Examples of basic expenditures are defense, payment of interest on loans and debts,
law and order.
b. Secondary expenditure
Examples of secondary expenditure are social welfare, health and education,
retiring pensions, subsidies.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 22:-
WHAT ARE THE CANONS/PRINCIPLES/STANDARDS OF FINANCIAL PROPRIETY?

Canons of financial propriety basically refer to a set of rules and practices that are laid
down by any organization regarding financial management/decisions to be made and must be
followed by the authorities for the efficient and prudent utilization of assets and capitals.
I. The expenditure apparently should not be more than the occasion demands.
II. While incurring expenditure, every public servant should exercise the same vigilance
in respect of expenditure incurred from public money, as a person of ordinary
prudence would exercise expenditure from his own pocket.
III. No authority should exercise its powers of sanctioning expenditure, to pass an order, which
will directly or indirectly for his/ her own advantage.
IV. Public money should not be utilized for the benefit of a particular person or sections of the
society.
V. The amount of allowances such as TA/DA granted to meet expenditure of a particular
time, should be so regulated that the allowances are not on the whole, a source of profit to
the recipient.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 QUESTION NO. 23:-
WHAT ARE THE CANONS OF PUBLIC EXPENDITURES?

Following are principles on the basis of which public expenditures are made.
I. Canon of benefit
Government should allocate the expenditures on the things that are beneficial for the people
on the whole.
II. Canon of economy
Government expenditure should be made with utmost care and the level of expenditure must
be minimum on any item and avoid un-necessary spending.
III. Canon of sanction
According to this principle, there should be suitable way of making expenditure. All
expenditures may be made with the approval of the authority, which is entitled to sanction
that expenditure.
IV. Canon of surplus
According to this principle, it is required to cut your coat according to the cloth and avoid
deficit financing. But now, this principle has lost its complete sense and Government
budgets are showing deficit financing rather surplus so that social and economic
development should not suffer.
V. Canon of elasticity
This principle says that the Government expenditure policy should be according to the
needs. Meaning thereby that Government expenditure policy be elastic than rigid.
VI. Canon of productivity
According to this principle, the Government expenditure should promote productive
activities in the society.
VII. Canon of equitable distribution
Structure of Government expenditure be framed in such a way that the inequalities
be decreased and the flow of expenditure be diverted in favor of weak segments of the
society. In developing countries like Pakistan, reverse is the situation. The feudal and
business classes, who are always in power, divert the public expenditure in their favor by
neglecting the poor and needy class in the country.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 Question No. 24.
WHAT IS WAGNER’S HYPOTHESIS?
OR
WHAT ARE THE CAUSES OF GROWTH OF PUBLIC EXPENDITURE?

Introduction.
In 1880’s a German expert Adolf Wagner presented his law regarding rising of
public expenditure. He had predicted the present day circumstances of political presents would lead
to social development as a consequence of development of modern industrial society. As a result,
the public sector will expand and the share of public sector in the economy will increase. No one
can refuse that the public sector is widening day by day and there has been an absolute increase in
public expenditure. In order to know the reasons of increase in public expenditure, he presented his
hypothesis called Wagner’s Hypothesis.
According to Wagner, there exists a functional relationship of “cause and effect” between
increase in Government expenditure and growth of the economy. The growth of public sector is an
inherited property of modern industrial states. He further says as the per capita income and
industrial productions increased in the industrial countries, the public sector growth took place in
proportion to increase in economic activities. In the light of Wagner’s hypothesis the development
and growth of public sector took place in industrial societies on the basis of following factors.
I. Social Progress
According to Wagner, the social changes (changing views, attitude towards work, views
on education, religious and change in social setup) lead to increase in functions of the
state. They increase Government activities and then public expenditure. In this way, the
cause and effect chain works.
II. Increase in per capita income
As income of country and per capita income increases, the demand for automobiles,
parks, educational institutions, hospitals and roads, water, electricity and gas increases.
The modern Government has to meet the above demands of the people and hence provide
all facilities to citizens leading to increase in public expenditure.
III. Changes in population
Due to increase in population, the demand for civic amenities arises. For all these
purposes, the state has to come forward and spend huge funds. In addition to it, political
promises made at the time of election, urbanization, the flow of population to cities lead
to increase in public expenditure.
IV. Technological Changes
When the changes occur in technology, need for products increase like motorways for
automatic vehicles for fast speeding, railway tracks, defense industry and computer
technology has forced Governments to invest more in development sector.
V. Increase in defense expenditure
Now a day, nations are spending more on defense expenditure. Particularly, the
geographical issues and counter terrorism activities have increased to great extent.
VI. Inflationary pressures
Because of inflation, the public sector has to receive an expansion. When in a
country prices rise, Governments have to make more payments against the goods
and services purchased.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 VII. Transfer payments & redistribution schemes
The democracy, education and mass media (print and electronics), all have been found
responsible for creating awareness among the people. The Government has to spend more
on unemployment allowance, housing, pensions, and old age benefits.
VIII. Balanced economic and social development
As all the regions of a country are not alike, this may be due to difference in skill,
education, climate, environmental and difference in facilities. The areas that lag behind in
development, Government gives rebate, tax holidays, establishes industrial state, provide
infrastructural and even certain industries in the backward areas.
IX. Monopolistic behavior
In case of underdeveloped countries, big firms and business men assume
monopolistic behavior in the sale of goods and purchase of imports. The employers
exploit the labor by giving low wages and restricting employment. Thus Government
comes forward to solve the issues.
X. Agriculture development
In the UDC’s, the agriculture is a big sector but it is facing a lot of problems. The lands
fall prey to water logging and salinity. The farmers are illiterate and suffering from
economic and social problems. Government has to come forward and spend more to
resolve all these issues.
XI. Need for law and order
Because of economic growth, increase in per capital income, increase in population,
industrialization, urbanization, the problem of civic life are increasing day by day
and Government expenditure on law and & order and judiciary increase rapidly in
national wealth.

Criticism on Wagner’s Hypothesis

I. According to Wagner, it is the interaction of so many factors of the economy which is

responsible for rising expenditure of the state. But infact this theory has not presented any
such interaction.
II. This theory failed to provide any analytical framework regarding increase in Government
expenditure.
III. In Wagner’s theory regarding behavior of the state is based upon a self-determined theory.
As a result, this theory failed to attain the position of an established principle.
IV. This theory ignores the effects of war on the activities of the Government expenditure.
V. It failed to identify the time pattern and process of Government expenditure.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 QUESTION NO. 25.
WHAT ARE THE EFFECTS OF PUBLIC EXPENDITURE?

According to free market economy philosophy, state activities and public expenditure had a
limited role. Its policy dimensions are limited to the preservation of the state and society and
provisions of commercially non-viable essential services and projects. There is a lack of general
agreement regarding effectiveness of public expenditure as a policy too. Any study of the effects
of public expenditure should be based on the basic facts like Government sector being an integral
part of the economy, independence between Government and non-Government sectors and
multifunction role of public expenditure.
a. Effects on Production
Public expenditure increases production:
i. Improving the productive efficiency of the workers.
ii. Providing economic and social heads.
iii. Gives direct assistance in the form of loans, grants and subsidies and
technical advice.
iv. Investment in public enterprises.
Besides raising level of production, public expenditure can influence the pattern of
production or consumption of output.
b. Effects on Distribution of wealth
Public sector expenditure can have a very wholesome influence on distribution of
wealth in the community. It can reduce the inequalities of incomes. It is an admitted fact
that the benefit to the poor from the state activity is far greater than the rich. A rich man
can protect himself. He can make arrangements for the education and medical relief for
himself and for his family. But a poor man is always helpless. It is, therefore, the poor man
who benefits from the state activity also. To this extent, the state expenditure seeks to
bridge the gap between the rich and poor.
There is certain expenditure which benefits the poor exclusively, e.g. poor relief, old
age pension, unemployment and sickness benefits etc. The benefits desired from such
social services by the poor may be regarded as net addition to their incomes. And when we
remember that the revenue is obtained by taxing the rich, the conclusion is inescapable that
inequalities of wealth distribution have been reduced to some extent.
c. Effects on Levels of Income and Employment
The public expenditure affects the level of income and employment in the country.
The Government can remove widespread unemployment during the periods of depression
through liberal public expenditure on public works. It can thus raise the level of income
and employment in the country.
d. Effects on Economic Stability
The activities of market economy are never alike. Sometime, there is a brisk in
economic life, while on other occasions; the business life faces sluggish behavior. Thus,
after 1930’s great depression, the economists are stressing upon economic stabilization.
Keynes, a renowned economist, stressed upon increasing consumptions and investments for
the sake of stability. Through fiscal measures, the level of employment can be increased,
particularly; the public works programs can be started for removal of unemployment. Thus
these people will purchase the goods and services, then through multiplier process income
and employment could increase when propriety to consumer increase.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 42
 e. Effects on Economic Growth
With the help of Government expenditure, the economic stability can be brought.
Again, the objectives of economic revival can be attained. They can be used to solve the
regional disparities. The public expenditure can be used to remove unequal income
distribution. They can provide infrastructure. The facilities of health, education and
communication can be made available. All such means that Government expenditures can
be used for economic development and economic growth. However, because
of Government expenditure, the income of the people through multiplier process
will increase. When income increases the savings will also increase. They can be used for
investment. All such shows that increase in Government expenditure can play a vital role
in economic growth of a country.

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Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 43
QUESTION NO. 26.
WHY GOVERNMENT SPENDS ON EDUCATION, HEALTH AND SOCIAL
PROTECTION?

Introduction:-
The prime aim and objective of the utilization of Public Finance by any Government is to
attain the status of maximum social advantage for its people. The principle of maximum social
advantage means maximum benefits for the maximum number. For this purpose, every
Government strives to allocate maximum resources on the welfare of its subjects. The welfare
may be in the field of security by military from foreign aggression & maintenance of law and
order through the agency of police. After safeguarding the security measures, Government
focuses on the social welfare through health, education, food, shelter and sanitation.
Now, we shall discuss in detail, how public spending on education, health and
social protection achieve the welfare of the people at large.

I. Education
Education is the powerful agent of change. It is essential to the success of everyone
by getting education through public spending. Following are the benefits of spending on
education:
i. Poverty reduction.
ii. High income.
iii. Health benefit.
iv. Economic growth.
v. Discouragement of crimes.
vi. Environment benefits.
vii. Reduces gender based violence.
viii. Reduce child marriage.
ix. Reduce maternal death ratio.
x. Promotes equality.
II. Health
Benefits for spending on health:
i. It gives birth to healthy nation.
ii. Work productivity increases by healthy people.
iii. It leads to eradication of diseases.
iv. Healthy person’s mind performs well.
v. It protects the people from wastage of resources due to spending on
ailment.
vi. To improve child mother health care.
vii. Timely health care saves life.
viii. To develop clean environment to control disease.

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Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 44
 III. Social Protection
Government spending made on social protection is in the benefit of the
citizens leading to ultimate success of the smooth functioning of the Government
and society. Social protection includes:-
i. Crime prevention
ii. Checking on theft and stealing
iii. Lowering hospital services
iv. Reducing court cost v.Reducing fear
v. Moral up gradation
Police is instrument in the social protection function of the state. But alas! It is
not available in the developing country like Pakistan.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 45
 QUESTION NO. 27.
WHY GOVERNMENT GIVES SUBSIDIES AND GRANTS IN THE AUTHORIZED
SCHEDULE OF EXPENDITURE?

Introduction:-
Underdeveloped nations are keen in rapid economic development which require huge
expenditure to be incurred in the various sectors of the economy. The private sector is either
unable to save and invest these huge amounts on unwilling projects because the return on
investments may be uncertain or long delayed. Hence, economic development has to depend
almost entirely on public expenditure, therefore, subsidies play a vital role in economic
development of an underdeveloped country.
Public expenditure promotes economic development in the following ways:-
a. Social and economic overheads.
b. Balanced regional growth.
c. Development of agriculture and industry.
d. Exploration and development of mineral resources.
e. Subsidies and grants.

Now we will discuss, why Government spends on subsidies and grants to promote
economic development in the country.

What is subsidy:-
A subsidy is a Government incentive in the form of financial aid or support, extended to an
economic sector, generally with the aim of promoting economic and social sector. The WTO
defines subsidy as an unfair financial advantage/benefit to specific industry, business or individual.
Each year, the federal Government subsidies a wide range of economic activities that it wants to
promote.
Types of Subsidies:-
Following are types of subsidies:
a. Cash subsidies:-
Such as grants
b. Tax concessions:-
Such as exemptions, concessions, deferrals
c. Government procurement policies:-
Government pays more than the free market price
d. Assumption of risk:-
Such as loan guarantees
e. Stock purchase:-
Government keeps a company stock price higher than market level/price.

These are all considered subsidies, because these subsidies reduce the cost of doing
business. Government extends subsidies in the following fields/forms.
i. Agriculture subsidies
ii. Consumer items (oils, seeds) subsidies
iii. Housing subsidies
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Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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What is Grant?
Unlike loans, grants are funds that the recipient does not have to pay it back. Such
assistance is not commonly associated with common people. Grants are given in the field
of education, research, scholarships, seed money, technical assistance grants, and scientific
equipment grants given by federal Government to the provinces.
Conclusion:-
On the basis of the above discussion, we conclude it that public expenditure has to play
vital role in economic development. Government gives subsidies and grants as an incentive to the
people to promote social and economic development in the country.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 CHAPTER NO. 5

PUBLIC DEBT

QUESTION NO. 28.

DESCRIBE MEANING AND CLASSIFICATION OF PUBLIC DEBT.

Public Debt
Public debt refers to borrowing by a Government from with the country or from abroad,
from private individuals or association of individuals or from banking and non-banking
institutions.
Salient Feature of Public Debt
Irrespective of what comprises public debt of a Government, it would be helpful to have
some idea of the types of obligations which national Government usually incur. These are
i. Currency
ii. Short term debt
iii. Floating debt
iv. Permanent/Dated/Funded debt
v. External debt
vi. Internal debt
vii. Marketable/Non marketable debt/loans
viii. Interest bearing/ Non-interest bearing debt
ix. Productive/Unproductive debt

Classification of Debt
i. Internal and External Debt
Internal debt is raised from within the country. External debt is taken from foreign
Governments or institutions.
ii. Productive and Unproductive Debt
Productive debt is expected to create assets which will yield sufficient income to pay the
principal amount and interest thereon. On the other hand, loans raised for war do not
create any asset; they are dead weight and are regarded as Unproductive debt.
iii. Short Term and Long Term Debt
Short term debts are repayable after short interval of time, e.g. treasury bills. These are
intended to bridge the gap temporarily between current revenue and current expenditure.
It is also called floating debt. Long term loans are payable after a long time covering
several years. They are also called funded debts.

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Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 48
QUSTION NO. 29.
BRIEFLY DISCUSS INTERNAL DEBT BURDEN AND EXTERNAL DEBT BURDEN?

In public finance, public debt comprises internal and external debts. In Pakistan total
external debt burden stand at 130.632 billion U.S Dollars and internal debt was 41973 billion
Pakistani Rupees on 31st December 2021.
Internal Debt Burden:
It is said that an internal debt is no direct money burden since the interest payment on debt
and the imposition of taxation to pay the interest to the lenders is simply a transfer of purchasing
power from one to another.
Main sources of internal debt
Main sources of internal debts are:
f. Commercial Banks
g. Internal Financial Institutions
h. Borrowing from Citizens
i. Central Bank (SBP)
External Debt Burden:
It is a form of financing borrowed by a country from foreign lenders and often takes the
form of tied loans.
External debt burden is the reflection of the difficulties and strains arising from the
servicing of external debt. This may result in inability to generate enough resources to meet
commitments in debt servicing.
Debt Servicing:
Debt servicing is the set of payments actually made to satisfy debt obligation including
principle, interest and late payment charges.
Problem of External Debt Burden:
It leads to diverting resources from social and public services towards debt servicing.
Sources of External Debt:
Following are major sources of external debt for a government:
a. Foreign Commercial Banks
b. International Financial Institutions like IMF, World Bank, Asian Development Bank
(ADB)
c. Governments of foreign nations
Why External Debt has become Problem for Pakistan?
External Debt becomes a problem for Pakistan because of the following reasons:
a. Crowding out of private investment
b. Inflationary Pressure
c. Financial System’s instability
d. Exchange rate fluctuations
e. Use of external debt on unproductive sectors
f. Corruption in getting foreign loans
g. Depletion of foreign exchange reserves

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 49
QUESTION NO. 30.
WHAT IS THE STRUCTURE OR SOURCES OF PUBLIC DEBT?

Following is the structure or sources of Public Debt.

I. Borrowing from Individuals
When Government has to borrow, it sells its bonds. When individuals purchase these bonds,
they indirectly provide loan to the Government. When Government borrows from public,
their consumption decreases and savings increase. This source of borrowing does not raise
enough sources for Government.
II. Borrowing from Non-Banking Institutions
In most of the countries, these are non-banking institutions which deal in loans as National
Saving Centers, Post Office Savings Banks, Cooperative Banks and Insurance Companies
etc. Government gets loans from these sources directly. Against which they provide loans to
Government by purchasing Government bonds. But insurance companies prefer to invest in
private companies’ rather purchasing Government bonds, because business companies pay
higher interest rate. This source also does not provide enough sources to Government.
III. Borrowing from Commercial Banks
The people and non-banking financial institutions provide loans to Government from
their own sources as the commercial banks are aimed at earning profit, therefore, they
provide loans to Government under pure commercial basis.
IV. Borrowing from Central Bank (SBP)
Central Bank is not only lender of the last resort for commercial banks but also for the
Government. Therefore, the Government gets different types of loans from central banks. In
this respect, central bank charges different interest rates. A central bank provides loans to
Government against Government treasury bills, Government securities and Government
bonds.
V. Borrowing from External Sources
While Government borrows from external sources, they may be bilateral as well as
multilateral loans. Moreover, such loans may be for development purposes as well as for
balance of payments. As loans provided by IBRD (International Bank of
Rural Development) are development oriented, while loans given by IMF are for removal
of deficit in Government Budget.
Bilateral loans are between two countries, which the multilateral loans are granted
by so many countries or by their club.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 50
QUESTION NO. 31:-
LEGAL FRAMEWORK OF PUBLIC DEBT/RESPONSIBILITIES OF AUTHORITY
ROLE AND GOVERNMENT INSTITUTIONS FOR PUBLIC BORROWING?

Legal Framework of Public Borrowing

The legal framework of public borrowing is given in the Constitution of Pakistan 1973. The
articles 166 & 167 of the constitution of 1973 relate to federal as well as provincial borrowing.

Article 166:
It relates to Borrowing by Federal govt. The executive authority of the federation extends
to borrowings upon the federal consolidated fund with a such limit, if any, as made from time to
time fixed by the act of Majlis-e-Shoora (Parliament) and to the giving of guarantees within such
limits, if any as may be so fixed.
Article 167(2):
The federal government, may, subject to such conditions, if any, as it may think fit
to impose, make loans to, or so long as any limits fixed under article 166 are not exceeded giving
guarantees in respect of loans raised by any province and any sum required a purpose of making
loans to a province shall be charged upon the federal consolidated fund.
Article 167(3):
Any province, may not, without the consent of Federal Government, raise any loan, if there
is still outstanding any part of a loan made to the province by the Federal Government, or in
respect of which guarantee has been given by the Federal Government and consent under this
clause may be guaranteed subject to such conditions, if any, as a Federal Government may think
to impose.
Article 167(4):
A province may raise domestic or international loans, or give guarantee on securities of the
provincial consolidated fund within such limits and subjects to such conditions as may be
prescribed by the “National Economic Council”

Institutions that play role in Public Borrowing

I. National Economic Council

The article 156 of Constitution of Pakistan 1973 deals with NEC of Pakistan. This
council shall review the overall economic condition of a country and shall, for advising
the Federal Government and the Provincial Government, formulate plans in respect
of financial, commercial, social and economic policies and in formulating such plans it
shall, amongst other factors, ensure balance development and region equity.
The meeting of NEC shall be subject to Article 156 of the constitution and rule 22
of the rules of business 1973. This council comprises of 13 members under the
chairmanship of Prime Minister of Pakistan.
II. Economic Affairs Division
a. Assessment of requirements, programming and negotiations for external economic
assistance from foreign Governments and organizations.
b. It deals with matters relating to IBRD (International Bank for Rural Development)
ABD (Asian Development Bank) and other donor agencies.
c. It deals with economic matters pertaining to the economic and social council for
United Nations.
Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 51
 d. Negotiation and coordination activities pertaining to economic operations with
other countries i.e. RCD. (Turkey, Iran, Pakistan).
e. It deals with matters relating to technical assistance of foreign countries.
f. It also deals with external debt management.
g. It reviews the appraisal of international and regional economic trends and
their impact on the national economy.
h. It deals with matters relating to transfer of technology under UNDP assistance.
i. It deals with matters relating to the International Islamic Development Bank
III. Finance Division
Finance Division manages the Public Debts of federation, both internal and
external borrowing money on the security of Federal Consolidated Fund.
a. It manages loans and advances of the Federal Government.
b. It watches proper utilization of the country’s foreign exchange reserves
and resources.
c. It deals with investment policies of the Government.
d. It may negotiate with the internal organizations and other countries.
IV. Auditor General Department
Sometimes, the donor agencies put a condition in the agreement of loans for
release of subsequent installment of loans to be made on the provision of
satisfactory utilization of earlier installments. This certificate is issued by the Auditor
General of Pakistan.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 32:-
DESCRIBE ROLE OF PUBLIC BORROWING IN DEVELOPING COUNTRIES LIKE
PAKISTAN.

A developing country has to take all possible measures to mobilize its sufficient
financial resources, for the implementation of its economic development plans. It has to use its
revenue surplus (saving) for this purpose, seek internal aid, paid up of its level of taxations and
finally resolve to popular borrowing in addition. But taxation and public borrowing are the
major resource mobilization.
Public borrowing has one advantage over taxation. Taxation, beyond a certain limit tends
to affect economic activity adversely. There is no such danger in public borrowing it promotes
economic activity.
According to expert’s opinion, taxation should cover at least current expenditure on
normal Government activities and borrowing should be resorted to finance government
expenditure for development purpose. In that case, growing public debt will not be burden on the
economy because such a debt is self-liquidated.
In present times, the amount of public debts or loans is increasing at very fast rate. Every
country of the world is borrowing through internal as well as external sources. Following are the
reasons/causes of growth of public debts in present era.
i. Abandonment of free market economy
ii. Unpopularity of taxes
iii. Facing financial calamity
iv. Defense and war expenditure
v. Meeting the budget deficit
vi. Controlling of inflation
vii. Financing Economic development

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 53
 QUESTION NO. 33.
GROWTH/INCREASE IN DEBT OF DEVELOPING COUNTRIES LIKE PAKISTAN

Borrowing by public authority is a modern practice. In the past, whenever, there was an
emergency, usually a war, the monarch relied on the handed wealth or borrowed on his
own personal credit. But this method of finance is not suited to modern condition. It will be
inadequate and uneconomical.
The system of Public credit, making it easy for the states to borrow, has led to tremendous
increase in the indebtedness of modern states.

Causes of Increase in Public Debt

Besides war, there are several other causes which have brought about great increase in the
size of Public Debt.
1. War or war preparation
2. Budget Deficit
3. Welfare schemes of Government
4. Public utilities
5. Urge for Economic Growth
6. Low Zakat to GDP Ratio
7. Defective Law and Order situation
8. Rising political based expenditures
9. Corruption at national level
10. Drastic increase in non-development expenditures

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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 CHAPTER NO. 6
NATIONAL FINANCE COMMISSION (NFC)

QUESTION NO. 34.

WHAT IS THE NFC AWARD AND WHEN IT COME INTO BEING AND WHY IT
IS IMPORTANT?

The National Finance Commission (NFC) award is meant to distribute financial resources
between the Federal Government and the Provinces.

Historical Background
After the promulgation of the Government of India Act 1935, provincial autonomy was
introduced in colonial India, then British Government introduced first financial award,
called Niemeyer Award 1936. Afterward, the Raisman Program known as Raisman award was
succession of ongoing programs of economic resources distribution in Pakistan, announced by the
Prime Minister Liaqat Ali Khan. The then secretary finance Sir Jeremy Raisman was appointed to
prepare the mechanism for the distribution of tax revenue. Later, the award was renamed as
National Finance Commission Award.
The NFC Award includes the distribution of taxes collected by the Federal
Governmentwhich form the divisible pool which includes taxes on income including corporate
tax, sales tax and export duties. Pakistan has historically inclined towards a highly centralized
federation and the Federal Government has massive powers to collect tax revenue, which
then is distributed among the provinces. It determines the tax basis, “who should be taxed”
the procedure of tax as well as the tax collection mechanism.
Introduction of NFC
Pakistan is federation and has four provinces/Units Punjab, KPK, Sindh, Baluchistan as
well as other territories including Gilgit Baltistan and Azad Kashmir, which come under Federal
Government Territory.
Legal Framework of NFC
According to Article 160 of constitution 1973, after every five years, the President will
constitute the NFC for a period of five years. Once there is consensus of all stakeholders on a
particular formula to distribute the finances, the award will be implemented
Distribution of Financial Resources
From the divisible pool, at the moment, out of every single rupee, the Federal
Government retains 42.5% while the share of provinces is 57.5%. The distribution of finances
among the provinces was until 2010, solely based on population. This meant a major share of the
resources went to Punjab. In addition to it, there are other factors that are taken into account for
the share of provinces:
I. Public Investment complements private investment. Since, there was minimum public
investment in Balochistan and KPK throughout the colonial era, both provinces
remained deprived of private investment as well. Hence, historically they happened at
disadvantage.
II. Other than the divisible pool, funds are transferred to the provinces as right of royalty
over their resources and grants for a development and non-development. Historically,

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 55
 the smaller provinces did not receive their due share in royalty that is exploration of gas
from Baluchistan.
Redressal of Grievances of Provinces
The NFC in 2010 has addressed at least long overdue concerns and made a shift from
population based criteria. It introduced a multiple indicator formula for the distribution of
financial resources among provinces.

NFC indicators after 2010

a. Population 82%
b. Poverty and Backwardness 10.3%
c. Revenue Collection and Generation 5%
d. Inverse population diversity 2.7%

Total 100%

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
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QUESTION NO. 35:-
WHAT IS THE MAIN CHARTER / OBJECTIVE/ FUNCTION OF NATIONAL FINANCE
COMMISSION (NFC)?

Main Charter / Functions / Objectives of NFC are to recommend the share of economic
resources from the Federal Divisible Pool:
a. The distribution of specified taxes and duties between federation and provinces.
b. Disbursement of grants to provincial governments.
c. The borrowing powers exercise by Federal and Provincial governments.
Source:
Articles 160 to 165 of the Constitution of Islamic Republic of Pakistan 1973 are the
provisions which provide legal cover to NFC.
Composition of NFC:
NFC shall consists of Federal Finance Minister, the finance ministers of the provinces and
such other members (historically one from each province) as appointed by the President in
consultation with the governors of the provinces.
First NFC award was announced in 1975. The 7th NFC award was signed on 30th December
2009 and its recommendations was given legal cover w.e.f 01st July 2010, through Presidential
order no. 5 of 2010 (Distribution of revenues and grants in order).
Divisible Pool:
The NFC award includes the distribution of taxes collected by the Federal Government
which form a divisible pool. This pool includes taxes on incomes including corporate tax, sales tax
and export duties.
Introduction to NFC Award:
The NFC award is a series of planned economic programs in Pakistan enacted since 1951.
Constituted under the article 160 of the constitution, the program was emerged to take control of
the financial imbalances and equally managed the financial resources to four provinces to meet
their expenditures liabilities while eliminating the horizontal fiscal imbalances. As per constitution,
the program, awards the designs of financial formulas of economic distribution to provincial and
federal government for five consecutive years. All together a total of seven awards have been
formulated since its emergence in 1951, by Prime Minister Liaqat Ali Khan. Stipulations and
directions mentioned by constitution, the provincial governments and federal governments compete
to get higher shares of the program revenues in order to stabilize their own financial status.
Intergovernmental transfer of economic resources is chaired by President of Pakistan whose
constitutional purpose is to supervise the system of fiscal transfers between provincial and federal
government. Government financial specialists, mathematicians and economists study the
mathematical and statistical aspect of the program before recommending the government to enact
the program. Due to this program, producing a political re-alignment and the constitutional
stipulation, regarding unanimous political consensus between the four provinces, only seven
awards have been enacted since its emergence in 1951.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 57
QUESTION NO. 36:-
DISCRIBE THE ALLOCATION OF SHARE OF NET PROCEEDS OF THE TAX TO
EACH PROVINCE AS STATED IN ORDER NO. 5 OF 2010 BY THE PRESIDENT OF
PAKISTAN?

In Pursuance of clause (i) of Article 160 of the Constitution of Pakistan 1973, the President
of Pakistan appoints a National Finance Commission to make recommendations for distribution of
the net proceeds of certain taxes between the federation and the provinces. In this connection,
President of Pakistan issued a Presidential order no. 5 of 2010, dated 10th May 2010.
According to this presidential order clause (iii)(i), the distribution of revenues in the state
are;
a. Taxes on income
b. Wealth Tax
c. Capital Tax
d. Tax on sales and purchase of goods exported, imported, produced, manufactured or
consumed
e. Export Duties on Cotton
f. Custom Duties
g. Federal Excise Duties excluding the Excise Duty on gas charged at well-head
h. Any other tax which may be levied by the Federal Government

Allocation of shares to the provincial governments:

There are multiple indicators agreed upon for this allocation:
a. Population 82%
b. Poverty and Backwardness 10.3%
c. Revenue Collection and Generation 5%
d. Inverse population diversity 2.7%
Share of Provincial Governments:
The sum assigned to the provincial governments is distributed amongst the provinces on the
basis of percentage specified against each:
a. Balochistan - 9.09 %
b. Khyber Paktunkhwa - 14.62 %
c. Punjab - 51.74 %
d. Sindh - 24.55 %
Grant-in-Aid to Provinces:
The Federal Government may assist the provinces through specific grants in time of
unforeseen calamities or others.
Net Proceeds:
Net proceeds mean in relation to any tax, duty or levy, the proceed thereof reduced by the
cost of collection as ascertained and certified by the Auditor General of Pakistan.

Lectures By: Sir Iftikhar Ahmad, Compiled by Javed Iqbal, O/o the D.G. Accounts Works
Updated by : Ulfat Abbas Jafery, AG Punjab (District Accounts Office Chakwal)
Page No. 58