Fiscal policy of Pakistan 2013


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Fiscal policy of Pakistan 2013

  1. 1.  Fiscal policy is an important part of overall economic Framework of country.  The Fiscal policy is formed by Central Govn (Federal Govn)---- Ministry of Finance.
  2. 2. • What is a Fiscal Policy? According to Samuelson Fiscal Policy is concerned with all those arrangements which are adopted by the Government to collect the revenue and make the expenditures so that economic stability could be attained/maintained without inflation and deflation. Fiscal policy means the use of taxation, Public expenditure by the Government for purposes to “Stabilization” and “Development”.
  3. 3.  Fiscal policy to refers the policy under which government uses its expenditure and revenue program to produce the desirable effect of national income , production and employment.
  4. 4.  Taxes  Direct tax  Indirect Tax  Fees  Aids  Fines  Loan
  5. 5.  Development of country  Expansion of Employment  Fixation of Govt Policy  Economic Growth  Controlling Inflation  Check imbalance the various sectors  Reduce inequality the income and wealth  Increasing the Investment  Optimum allocation of Resources
  6. 6.  Implementing the Fiscal policy of the Nation  Govt revenue  Expenditure  Budget  The Budget of the Govn is main instrument of the Fiscal Policy.
  7. 7.  The Estimated Revenue and Expenditure of he next year and the Future year of the Govt with specific time.  Fiscal policy involves the Revenue and Expenditure pattern to achieve the range of Economics Objectives.
  8. 8. Governments expenditure can be funded in a number of different ways:  Taxation of the population  Non Tax  Borrowing money from the population,resulting in a fiscal deficit.  External resources: Foreign grant and loans etc
  9. 9. 1) Direct: Direct tax is the one paid directly to the Govt. By the persons on whom it is imposed Income Tax, Property Tax, Capital Value Tax etc 2) Indirect: It is collected by an intermediary(such as a retail store) from the person who bears the ultimate economic burden of the tax(such as the customer). Sales Tax
  10. 10. Comparison of Taxes in 2012 and 2013 1463.5 1320.9 783.2 735.8 731.9 513.6 2012 Direct Tax Indirect Tax 2013 Non-Tax Growth rate increased by 16.2% in 2013 Major part of this increase came from the rise in the non-tax revenues.
  11. 11.  Tax Evasion It is an illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability.
  12. 12.  People do not want to disclose their true income  Too many unlawful business activities such as drugs, hoarding, black money, etc.  No fear of punishment  Complex tax structure  Uncontrolled inflation and high cost of living  Low level of literacy among tax payers  Some economic sectors are exempted: Agriculture,real estate and capital gain
  13. 13. The principal reason lies in the structural weaknesses of Pakistan’s tax system which is:  Complex  Inefficient  Unfair
  14. 14.  Lowering tax rates  Taxing all value additions including services,not just manufacturing sector  Establish an effective and efficient tax system.  Overcome the culture of tax avoidance and evasion
  15. 15.  Expansionary: An increase in government purchases of goods and services, a decrease in net taxes, or some combination of two for the purpose of increasing aggregate demand and expanding real output. Aggregate demand= consumption+investment+Govt spending+net Exports  Contractionary: A decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two for the purpose of decreasing aggregate demand and thus controlling inflation.
  16. 16. Fiscal deficit is the difference between the government’s expenditures and its revenues (excluding the money it’s borrowed). A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP). Fiscal Deficit=Govt. Spending –Govt. Earning Causes of Fiscal Deficit  High Govt. Spending  Lower Revenue  Inflation
  17. 17. Economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.
  18. 18. Fiscal Deficit 8.5 9 8 7 6 5 4 3 2 1 0 8 7.2 FY09 FY10 FY11 Budgeted FY12 Actual FY13
  19. 19. The deviation from initial estimates was largely on account of three factors:  underestimation of subsidies  underestimation of interest payments  overestimation of FBR tax revenue.
  20. 20.  Increase in non-development expenditure 32% Of the total expenditure is spend 32% on the Defense & 68% Interest Payments. Interest & Defense Total Expanditure
  21. 21. Increase in non-development expenditure  Rs. In Billions 1000 900 800 700 600 500 400 300 200 100 0 2011 2012 Defence 2013 Interest
  22. 22.  Too many factories are closed or in partial production for want of power and gas  Tax Evasion by well performing industries  Corruption by Tax Officials  Law and Order causing burden on the Expenditure side by way of compensation to the affected and mobilization to send forces to such areas.
  23. 23.  FBR should impose new taxes  Increase the price of utilities  Decrease in development spending
  24. 24.  Pakistan fiscal position worsened because of unexpected events occurred on domestic and external scene.  High proportion of revenues being spent on defense and interest payments.  Lower industrial productivity leads to lower tax collection because of high interest rates.  Pakistan needs to increase tax base by imposing tax on agriculture and capital gain to increase revenue.