Fiscal Policy in Pakistan

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Fiscal Policy in Pakistan Government Receipts The Government receipts consist of the following four sources: 1. Revenue Receipts (Net of Provincial Shares): In Pakistan, the heavy dependence is upon revenue receipts, about 65-70% of the revenue is estimated to be drawn from revenue receipts. It includes tax revenue, non-tax revenue, and surcharges. (a) Tax Revenue: In taxes we have direct taxes such as income tax, and wealth tax. Indirect taxes such as central excise, sales tax, and custom duty.
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  Fiscal Policy in Pakistan Government Receipts  The Government receipts consist of the following four sources:1. Revenue Receipts (Net of Provincial Shares): In Pakistan, the heavy dependence isupon revenue receipts, about 65-70% of the revenue is estimated to be drawn fromrevenue receipts. It includes tax revenue, non-tax revenue, and surcharges. (a)   Tax Revenue: In taxes we have direct taxes such as income tax, andwealth tax. Indirect taxes such as central excise, sales tax, andcustom duty. Direct tax comprises about 70% of Pakistan’s total taxrevenue. (b)   Non-Tax Revenue: It includes income from government propertyand enterprises and receipts from Civil Administration and otherfunctions. (c)   Surcharges: Surcharges on natural gas and petroleum fall under thiscategory.2. Capital Receipts: Capital receipts include external borrowing and internal non-bankborrowings consisting of unfunded debt, public debt, treasury and deposit receiptsbesides the revenue account surplus and the surplus generated by public sector, etc. 3. External Resources: External resources are loans and grants which come from varioussources. These sources include consortium, non-consortium and Islamic sources of aid: (a)   Consortium: Consortium provides aid at both bilateral andmultilateral levels:   (i)   Sources of  consortium bilateralaid are Belgium, Canada, France, Germany, Italy, Japan,Netherlands, Norway, Sweden, United Kingdom and UnitedStates.   (ii)   Consortium multilateral aid comesfrom Asian Development Bank (ADB), International Bank forReconstruction and Development (IBRD), Int. DevelopmentAssociation (IDA), Int. Finance Corporation (IFC), and Int. Fundfor Agricultural Development (IFAD).  (b)   Non-Consortium: Non-consortium sources of loans and grantsmostly provide bilateral aid. These include Australia, China, CzechRepublic, Denmark, Finland, Rumania, Switzerland, Russia and Yugoslavia. (c)   Islamic Aid: Bilateral aid from Islamic countries come from SaudiArabia, Kuwait, Qatar, United Arab Emirates, Turkey, Lebanon, Libyaand Iran. While multilateral Islamic sources of aid are OPEC Fund, andIDB.Loans and grants received by Pakistan can be classified into ‘project’ and ‘non-project aid’. Non-project aid can be further decomposed into food, non-food, BOPand Relief aid.4. Self-Financing by Autonomous Bodies: This is actually the surplus left after meetingall the expenses of these bodies. This surplus is available to government for revenueand development expenditures. Government Expenditure Government expenditure is classified into current expenditure and developmentexpenditure:1. Current Expenditure: It comprises mainly debt servicing, defence, generaladministration, social services, law and order, subsidies, community services,economic services, grants to Azad Jammu and Kashmir, Railway and others. 2. Development Expenditure: Public Sector Development Program (PSDP) is anothername given to Government’s development expenditure. The priority areas aretransport and communication, power and water. These three sectors combined coverabout 50% of total allocation of PSDP.  The share of current expenditure is always remain substantial, it constitutedaround 70-80% of total Government expenditure. Non-developmentexpenditure is generally regarded as being excessive and therefore subjectedto persistent public criticism. With sharp increase in population, constantthreat from the enemies and increasing cost of corruption, non-developmentexpenditure is subjected to a rising trend which could only be controlled byrapid economic development. On the other hand, negligence of non-development expenditure may result into ill-equipped and under-staffedhospitals, dispensaries and educational institutes, and arrears inmaintenance of roads, dams, bridges, electricity and forests. Non-development expenditure should be economically managed in order toensure the economic development of Pakistan.   There are six major heads of current expenditure of Federal Government of Pakistan:1.   Defence,2.   Debt servicing,3.   Subsidies and grants,4.   General administrative,5.   Social services, and6.   Others. Tax Structure of Pakistan 1. The narrow base enigma has been a base in Pakistan’s tax structure from thebeginning. 2. In 1987 when population of the country was more than a hundred million, the totalnumber of taxpayer was just over a million. 3. The main base taxes imposed are direct and indirect taxes. a. Direct tax of the Federal Government comprises of income tax, wealth tax andcorporate tax b. Indirect tax, on the other hand, consists of custom duty, excise duty, sales tax,import duty and all others. 4. Indirect tax contributes the predominant share to the total tax collection. Directtaxes have persistently dropped their share in total tax revenue. 5. Indirect tax, on the other hand, contributes more than 70% of the total tax revenue.Indirect tax is regressive. It may cause the inflation to rise and its incidence is fall onpoor class of the economy. Deficit Financing in Pakistan Following are the sources of deficit financing in Pakistan:1. Printing new currency notes 2. Public borrowings 3. Foreign loans, aid and grants 4. Using previous balances, and 5. Borrowings from banks including from the central bank. Dr. Mahboobul Haq defines deficit financing in the following words:(i)   Net borrowings by the government from the banking system whichincludes the State Bank of Pakistan (SBP) and commercial banksbut excludes non-banking institutions and individuals, and  (ii)   Net borrowings by the Government from the SBP only.But the public debt does not only constitute the above sources, it also includesmoney lent to Government out of the balances of the banks which would have beenheld if the Government had not borrowed them.Deficit financing is a sound and necessary instrument of the Government financeand its role, its desirability and limitations of its use in mobilising revenue, must beproperly analysed in the context of its broad implications on the economy andcompared to the adequacy of other techniques of resource mobilisation.It was planned in Third Five-Year Plan that there will be no deficit financing duringthe said plan but the government had to revise the plan. In the Fourth Five-YearPlan there were annual plans and major upsets in the economy. In the Fifth andSixth Five-Year Plans, though there were very large amounts of foreign remittancesbut there was not remarkable reduction in deficit financing.A well-managed deficit financing could be a key to greater economic achievementsespecially for a less developed country. A wise finance minister has to keep an eyeon all the factors of the economic development and spent the public fund in themanner that is most beneficial to the nation.
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