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FISCAL POLICY
Presented by: SIDRA ASAD
RAHMA HASEEB
TAYYABA ASHRAF
LAYOUT
• FISCAL POLICY
• GOVERNMENT BUGDET
• NFC AWARDS
“Fiscal Policy with reference to public income
and public expenditure is the strategy which
guarantees the economic stability and
development of country”
• Economic Stability
• Increased Savings
• Control Inflation
• Stabilized Price Level
• Desirable Level Of Consumption
• Distribution Of Wealth
• Reduction in Burden Of Foreign Debts
• Control on the Concentration of Wealth
• Trade and Industrial Development
• Financial Assistance to Lower Income Group
• REVENUE TOOLS
direct taxes
 indirect taxes
• SPENDING TOOLS
 Government expenditure:
 current spending
 capital spending
 transfer payments
There are two types of fiscal policy
• Expansionary Fiscal Policy
• Contractionary Fiscal Policy
Government purchases Government Taxes
The goal of expansionary fiscal policy is to:
• Close a recessionary gap
• Stimulate the economy
• Decrease the unemployment rate
Government Purchases Government Taxes
The goal of contractionary fiscal policy is to:
• Close an inflationary gap
• Restrain the economy
• Decrease the inflation rate
 Direct Taxes:
• Direct taxation is defined as the tax which is directly levied
on the citizens of a country
• All individuals and business concerns have to pay direct
taxes to the government on a regular basis
• During the fiscal year 2011-2012, the Federal Bureau of
Revenue (FBR) expects to collect Rs 738.8 billion in direct
taxes
• The direct taxes in Pakistan Include income tax, wealth tax,
property tax.
 Indirect Taxes
• An indirect tax is a tax 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)
• During the fiscal year 2011-2012, the Federal Bureau of
Revenue (FBR) expects to collect Rs 1,144 billion in
indirect taxes
• In Pakistan, indirect taxes include sales tax, value added
tax, GST and excise and custom duty
• The FBR has provisionally collected taxes worth
Rs.1940 billion during last financial year 2012-
2013, which may go to Rs. 1950 billion when
figures get finalize”, said Ansar Javed (retired
chairman of FBR)
http://www.nation.com.pk
Outline
• Budget
• Components
• Types of Budget
• Government Budget
• Budget 2013-2014
• Revenue and Expenditure 2013-2014
June 14 |Dacb| Rahma haseeb| 16
BUDGET
“Budget is the annual statement of the
expenditures and revenues of the federal
government with the laws and regulations that
approve and support those expenditures and
taxes”
Major objectives include:
• Finance activities of government
• Encourage economic growth and stability
June 14 |Dacb| Rahma haseeb| 17
Components of Budget
• Revenue Budget
• Capital Budget
Revenue Budget:
It consists of revenue receipts of
government and its expenditures
Revenue receipts include tax and non tax
revenue
Revenue expenditure includes payment
for day to day running of government and
services it offers to citizens.
June 14 |Dacb| Rahma haseeb| 18
Capital budget:
 The capital budget is different from the revenue
budget as its components are of a long-term
nature
 It includes capital receipts and payments
 Capital receipts are government loans raised
from the public, government borrowings from
the Reserve Bank and treasury bills, loans
received from foreign bodies and governments
 Capital expenditures are Capital payments are
capital expenditures on acquisition of assets like
land, buildings, machinery, and equipment
June 14 |Dacb| Rahma haseeb| 19
DEFICIT
BALANCED
SURPLUS
June 14 |Dacb| Rahma haseeb| 20
GOVERNMENT BUDGET:
Includes revenue and expenditures for capital
and revenue budget.
Revenue budget
The Receipts for this budget includes:
a)Tax Revenue
1.Tax on Income, profit and wealth
• Levied on income, profit and property of
people
• Have different rates for different income
groups and property owners
June 14 |Dacb| Rahma haseeb| 21
2. Taxes on Goods and Services
 Excise Duty
• Levied on production of selected industries
• Industries which have enjoyed tariff
preferences and have stability in market are
subjected to excise duty
• Also levied on services provided by hotels,
restaurants and advertisements.
 Sales Tax
• Levied on sale price of goods and services
• Rate varies with the nature of commodity
• Luxury goods have high sales tax then
necessities.
June 14 |Dacb| Rahma haseeb| 22
 Sub charge
• Difference between maximum sale price and
production cost or import price of petroleum, natural
gas etc. is realized by government and the surplus is
the source of revenue.
3. Custom Duty:
• Source of indirect tax
• Tax on import and export of commodities is custom
duty
• Rates vary with nature of commodity and
government policy
• Luxury items have high rate to discourage import.
June 14 |Dacb| Rahma haseeb| 23
b) Non – Tax Revenue
• Income from Property and enterprises
- Income from owned land, forests,
mines etc.
• Trading:
- Earned by Pakistan trading corporation
• Interest and dividend:
- Interest and dividends from investment
• Minor head:
- Receipts from civil administration
- Miscellaneous : passport fee, copy
right fee etc.
June 14 |Dacb| Rahma haseeb| 24
The expenditures for this budget includes:
1. Civil Administration
- Expenditure on civil departments of
federal government.
2. Defense
- Expenditure on maintenance and
operation of defense services
3. Law and Order
- Expenditure on operation of police
and courts for maintaining law and order
June 14 |Dacb| Rahma haseeb| 25
4. Community Social And Economic Services
- Performed by government for welfare
of people such as construction of roads,
railways, education etc
5. Subsidies
- To increase production and keep prices
stable, government helps producers
financially through subsidies
6. Debt Servicing
- Includes payment of interest and
repayment of principal amount of debt
June 14 |Dacb| Rahma haseeb| 26
Capital Budget:
The Receipts for capital budget includes:
1.Surplus from Revenue Budget:
• Measured as: Government savings=
Government Revenues – Current
Expenditure
2.Domestic Borrowing:
• It includes Bank borrowing and non- bank
borrowing
3.External Borrowing:
• External borrowing can increase
investment and growth
• If amount is not used for productivity
purpose, it will not generate revenues.
June 14 |Dacb| Rahma haseeb| 27
The Expenditure for this budget
includes:
• Expenditures for agriculture
• Water and power
• Education
• Health
• Transport and communication
• Development of factories
June 14 |Dacb| Rahma haseeb| 28
June 14 |Dacb| Rahma haseeb| 29
BUDGET PAKISTAN
2013- 2014
BUDGET 2013-2014
The budget 2013-14 has the following salient features:
• The total outlay of budget 2013-14 is Rs 3,985
billion. This size is 24.4% higher than the size of budget
estimates 2012-13.
• The net revenue receipts for 2013-14 have been
estimated at Rs 1,918 billion indicating an increase of
7.9% over the budget estimates of 2012-13.
• The net capital receipts for 2013-14 have been
estimated at Rs 493 billion against the budget estimates
of Rs 478 billion in 2012-13 i.e. an increase of 3.2%.
June 14 |Dacb| Rahma haseeb| 30
• The external receipts in 2013-14 are estimated at
Rs 576 billion. This shows an increase of 50.1% over
the budget estimates for 2012-13.
• The current expenditure is Rs 3,196 billion and
development expenditure is Rs 789 billion. Current
expenditure has been estimated to be higher than the
revised estimates for 2012-13 by around 9.9%, while
development expenditure by 37.7% in 2012-13 over
the revised estimates of 2012-13.
• The size of Public Sector Development Program
(PSDP) for 2013-14 is Rs 1,155 billion. Out of this, Rs
615 billion has been allocated to provinces. Rs 115
billion to New Development Initiatives and Rs 10
billion to Earthquake Reconstruction and
Rehabilitation Authority (ERRA).
June 14 |Dacb| Rahma haseeb| 31
• Standard rate of sales tax increased from
16% to 17%.
• Hybrid cars appear to be fortunate to have
been granted reduction in taxes. Curiously, the
relief is envisaged for cars over 1800cc!!
• FED at 40 paisa per kg on imported seeds and
at Rs 1 per kg on locally produced oil imposed.
June 14 |Dacb| Rahma haseeb| 32
June 14 |Dacb| Rahma haseeb| 33
June 14 |Dacb| Rahma haseeb| 34
June 14 |Dacb| Rahma haseeb| 35
June 14 |Dacb| Rahma haseeb| 36
June 14 |Dacb| Rahma haseeb| 37
June 14 |Dacb| Rahma haseeb| 38
KEY TARGETS
• Fiscal deficit to be reduced to 6.3
percent by 2013-14 compared to 8.8
percent in the outgoing year.
• Rs. 2.6 trillion to be collected as taxes.
• Inflation to be contained in single digit.
• Tax on the GDP ratio to be raised to
15%.
June 14 |Dacb| Rahma haseeb| 39
NFC AWARDS
DEFINITION
The NFC Award or National Finance
Commission Award, is the distribution
of financial resources among the
provinces of Pakistan by the federal
government on annual basis.
FEATURES
The main charter of NFC is to recommend on the
following:
• The distribution of specified taxes, duties between
federation and provinces.
• The disbursement of grants to provincial
governments.
• The borrowing powers exercised by federal and
provincial governments.
• Any other financial matter referred to commission.
WORKING
• Certain types of taxes collected in each province are
pooled and then redistributed according to the NFC
formula.
• Taxes included in the pool are
– income taxes
– general sales tax
– wealth taxes
– capital gains taxes
– custom duties
BACKGROUND
• 1971 incident: separation of East Pakistan
from West Pakistan
• Major issue arose about the “Distribution
of Resources” among the provinces.
PROVINCIAL SHARE IN 1970
AWARD
Punjab Sindh Khyber-
Pakhtunkhwa
Balochistan
56.50% 23.50% 15.50% 4.50%
FINANCIAL ARRANGEMENTS IN
1973 CONSTITUTION
It was made obligatory for the
government to compose NFC at an
interval extending not more than 5
years resource distribution among the
federation and their respective units.
• In this award fewer taxes were included in the
divisible pool which consisted of income tax, sales tax
and export duty while the criterion used for resource
redistribution was recommended to be population.
THE FIRST NFC AWARD 1974
Punjab Sindh Khyber-
Pakhtunkhwa
Balochistan
60.25% 22.50% 13.39% 3.86%
THE 2ND NFC AWARD 1979
Punjab Sindh Khyber-
Pakhtunkhwa
Balochistan
57.97% 23.34% 13.39% 5.30%
THE 3RD NFC AWARD 1985
The third NFC award 1985 as of its
previous 1979 award failed to produce
any fruits. The resource distribution
from divisible pools remains same as of
1974 up to 1990.
THE 4TH NFC AWARD 1990
• After almost 16 years of break in declaring a
consensus NFC award, the 1990 NFC award came
up with some positive recommendations in April
1991 under the democratic government of Prime
Minister Nawaz Sharif.
• The most significant development under this
award was the expansion of the divisible pool.
Still population remained the sole element for
revenue sharing criteria in the NFC award.
• The sharing of the divisible pool between
federal and provincial governments continued
to remain at 20:80 percent, respectively.
Punjab Sindh Khyber-
Pakhtunkhw
a
Balochistan
57.88% 23.28% 13.54% 5.30%
THE 5TH NFC AWARD 1996
• The shares in 5th NFC awards remained
the same
Punjab Sindh Khyber-
Pakhtunkhwa
Balochista
n
57.88% 23.28% 13.54% 5.30%
THE 6TH NFC AWARD 2000
• Provinces were demanding for higher
share in the divisible pool (up to 50
percent) as well as the diversification
of the distribution criteria.
THE 7TH NFC AWARD
THE 7TH NFC AWARD 2010
• Provincial share of the divisible pool would increase
from the present 47.5% to 56% in the first year of
NFC (2010-2011) and 57.5% in the remaining years
of the award under the vertical distribution of
resources
• Share of Provinces was approximately Rs.39 billion
• The federal government has agreed to cut tax
collection charges from 5.0 per cent to 1.0 per cent
and this amount would also be added to the divisible
pool
MEASURES TO BE TAKEN
• (1) Backwardness and development gap
• (2) Inverse income distribution (rural urban income disparity)
• (3) Natural resource endowment
• (4) Revenue generation/revenue collection
• (5) Population density
• (6) Poverty
• (7) Area
• (8) Non-formula transfers
• (9) Environmental consideration
REFERENCES
• www.finance.gov.pk
• www.fbr.gov.pk
• www.statpak.gov.pk
• www.wikipedia.com
• Economy of Pakistan, Saeed M. Nasir
Fiscal policy! Pakistan Budget 2013 to 2014

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Fiscal policy! Pakistan Budget 2013 to 2014

  • 1. FISCAL POLICY Presented by: SIDRA ASAD RAHMA HASEEB TAYYABA ASHRAF
  • 2. LAYOUT • FISCAL POLICY • GOVERNMENT BUGDET • NFC AWARDS
  • 3. “Fiscal Policy with reference to public income and public expenditure is the strategy which guarantees the economic stability and development of country”
  • 4. • Economic Stability • Increased Savings • Control Inflation • Stabilized Price Level • Desirable Level Of Consumption • Distribution Of Wealth
  • 5. • Reduction in Burden Of Foreign Debts • Control on the Concentration of Wealth • Trade and Industrial Development • Financial Assistance to Lower Income Group
  • 6. • REVENUE TOOLS direct taxes  indirect taxes • SPENDING TOOLS  Government expenditure:  current spending  capital spending  transfer payments
  • 7. There are two types of fiscal policy • Expansionary Fiscal Policy • Contractionary Fiscal Policy
  • 8. Government purchases Government Taxes The goal of expansionary fiscal policy is to: • Close a recessionary gap • Stimulate the economy • Decrease the unemployment rate
  • 9.
  • 10. Government Purchases Government Taxes The goal of contractionary fiscal policy is to: • Close an inflationary gap • Restrain the economy • Decrease the inflation rate
  • 11.
  • 12.  Direct Taxes: • Direct taxation is defined as the tax which is directly levied on the citizens of a country • All individuals and business concerns have to pay direct taxes to the government on a regular basis • During the fiscal year 2011-2012, the Federal Bureau of Revenue (FBR) expects to collect Rs 738.8 billion in direct taxes • The direct taxes in Pakistan Include income tax, wealth tax, property tax.
  • 13.  Indirect Taxes • An indirect tax is a tax 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) • During the fiscal year 2011-2012, the Federal Bureau of Revenue (FBR) expects to collect Rs 1,144 billion in indirect taxes • In Pakistan, indirect taxes include sales tax, value added tax, GST and excise and custom duty
  • 14. • The FBR has provisionally collected taxes worth Rs.1940 billion during last financial year 2012- 2013, which may go to Rs. 1950 billion when figures get finalize”, said Ansar Javed (retired chairman of FBR) http://www.nation.com.pk
  • 15.
  • 16. Outline • Budget • Components • Types of Budget • Government Budget • Budget 2013-2014 • Revenue and Expenditure 2013-2014 June 14 |Dacb| Rahma haseeb| 16
  • 17. BUDGET “Budget is the annual statement of the expenditures and revenues of the federal government with the laws and regulations that approve and support those expenditures and taxes” Major objectives include: • Finance activities of government • Encourage economic growth and stability June 14 |Dacb| Rahma haseeb| 17
  • 18. Components of Budget • Revenue Budget • Capital Budget Revenue Budget: It consists of revenue receipts of government and its expenditures Revenue receipts include tax and non tax revenue Revenue expenditure includes payment for day to day running of government and services it offers to citizens. June 14 |Dacb| Rahma haseeb| 18
  • 19. Capital budget:  The capital budget is different from the revenue budget as its components are of a long-term nature  It includes capital receipts and payments  Capital receipts are government loans raised from the public, government borrowings from the Reserve Bank and treasury bills, loans received from foreign bodies and governments  Capital expenditures are Capital payments are capital expenditures on acquisition of assets like land, buildings, machinery, and equipment June 14 |Dacb| Rahma haseeb| 19
  • 21. GOVERNMENT BUDGET: Includes revenue and expenditures for capital and revenue budget. Revenue budget The Receipts for this budget includes: a)Tax Revenue 1.Tax on Income, profit and wealth • Levied on income, profit and property of people • Have different rates for different income groups and property owners June 14 |Dacb| Rahma haseeb| 21
  • 22. 2. Taxes on Goods and Services  Excise Duty • Levied on production of selected industries • Industries which have enjoyed tariff preferences and have stability in market are subjected to excise duty • Also levied on services provided by hotels, restaurants and advertisements.  Sales Tax • Levied on sale price of goods and services • Rate varies with the nature of commodity • Luxury goods have high sales tax then necessities. June 14 |Dacb| Rahma haseeb| 22
  • 23.  Sub charge • Difference between maximum sale price and production cost or import price of petroleum, natural gas etc. is realized by government and the surplus is the source of revenue. 3. Custom Duty: • Source of indirect tax • Tax on import and export of commodities is custom duty • Rates vary with nature of commodity and government policy • Luxury items have high rate to discourage import. June 14 |Dacb| Rahma haseeb| 23
  • 24. b) Non – Tax Revenue • Income from Property and enterprises - Income from owned land, forests, mines etc. • Trading: - Earned by Pakistan trading corporation • Interest and dividend: - Interest and dividends from investment • Minor head: - Receipts from civil administration - Miscellaneous : passport fee, copy right fee etc. June 14 |Dacb| Rahma haseeb| 24
  • 25. The expenditures for this budget includes: 1. Civil Administration - Expenditure on civil departments of federal government. 2. Defense - Expenditure on maintenance and operation of defense services 3. Law and Order - Expenditure on operation of police and courts for maintaining law and order June 14 |Dacb| Rahma haseeb| 25
  • 26. 4. Community Social And Economic Services - Performed by government for welfare of people such as construction of roads, railways, education etc 5. Subsidies - To increase production and keep prices stable, government helps producers financially through subsidies 6. Debt Servicing - Includes payment of interest and repayment of principal amount of debt June 14 |Dacb| Rahma haseeb| 26
  • 27. Capital Budget: The Receipts for capital budget includes: 1.Surplus from Revenue Budget: • Measured as: Government savings= Government Revenues – Current Expenditure 2.Domestic Borrowing: • It includes Bank borrowing and non- bank borrowing 3.External Borrowing: • External borrowing can increase investment and growth • If amount is not used for productivity purpose, it will not generate revenues. June 14 |Dacb| Rahma haseeb| 27
  • 28. The Expenditure for this budget includes: • Expenditures for agriculture • Water and power • Education • Health • Transport and communication • Development of factories June 14 |Dacb| Rahma haseeb| 28
  • 29. June 14 |Dacb| Rahma haseeb| 29 BUDGET PAKISTAN 2013- 2014
  • 30. BUDGET 2013-2014 The budget 2013-14 has the following salient features: • The total outlay of budget 2013-14 is Rs 3,985 billion. This size is 24.4% higher than the size of budget estimates 2012-13. • The net revenue receipts for 2013-14 have been estimated at Rs 1,918 billion indicating an increase of 7.9% over the budget estimates of 2012-13. • The net capital receipts for 2013-14 have been estimated at Rs 493 billion against the budget estimates of Rs 478 billion in 2012-13 i.e. an increase of 3.2%. June 14 |Dacb| Rahma haseeb| 30
  • 31. • The external receipts in 2013-14 are estimated at Rs 576 billion. This shows an increase of 50.1% over the budget estimates for 2012-13. • The current expenditure is Rs 3,196 billion and development expenditure is Rs 789 billion. Current expenditure has been estimated to be higher than the revised estimates for 2012-13 by around 9.9%, while development expenditure by 37.7% in 2012-13 over the revised estimates of 2012-13. • The size of Public Sector Development Program (PSDP) for 2013-14 is Rs 1,155 billion. Out of this, Rs 615 billion has been allocated to provinces. Rs 115 billion to New Development Initiatives and Rs 10 billion to Earthquake Reconstruction and Rehabilitation Authority (ERRA). June 14 |Dacb| Rahma haseeb| 31
  • 32. • Standard rate of sales tax increased from 16% to 17%. • Hybrid cars appear to be fortunate to have been granted reduction in taxes. Curiously, the relief is envisaged for cars over 1800cc!! • FED at 40 paisa per kg on imported seeds and at Rs 1 per kg on locally produced oil imposed. June 14 |Dacb| Rahma haseeb| 32
  • 33. June 14 |Dacb| Rahma haseeb| 33
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  • 38. June 14 |Dacb| Rahma haseeb| 38
  • 39. KEY TARGETS • Fiscal deficit to be reduced to 6.3 percent by 2013-14 compared to 8.8 percent in the outgoing year. • Rs. 2.6 trillion to be collected as taxes. • Inflation to be contained in single digit. • Tax on the GDP ratio to be raised to 15%. June 14 |Dacb| Rahma haseeb| 39
  • 41. DEFINITION The NFC Award or National Finance Commission Award, is the distribution of financial resources among the provinces of Pakistan by the federal government on annual basis.
  • 42. FEATURES The main charter of NFC is to recommend on the following: • The distribution of specified taxes, duties between federation and provinces. • The disbursement of grants to provincial governments. • The borrowing powers exercised by federal and provincial governments. • Any other financial matter referred to commission.
  • 43. WORKING • Certain types of taxes collected in each province are pooled and then redistributed according to the NFC formula. • Taxes included in the pool are – income taxes – general sales tax – wealth taxes – capital gains taxes – custom duties
  • 44. BACKGROUND • 1971 incident: separation of East Pakistan from West Pakistan • Major issue arose about the “Distribution of Resources” among the provinces.
  • 45. PROVINCIAL SHARE IN 1970 AWARD Punjab Sindh Khyber- Pakhtunkhwa Balochistan 56.50% 23.50% 15.50% 4.50%
  • 46. FINANCIAL ARRANGEMENTS IN 1973 CONSTITUTION It was made obligatory for the government to compose NFC at an interval extending not more than 5 years resource distribution among the federation and their respective units.
  • 47. • In this award fewer taxes were included in the divisible pool which consisted of income tax, sales tax and export duty while the criterion used for resource redistribution was recommended to be population. THE FIRST NFC AWARD 1974 Punjab Sindh Khyber- Pakhtunkhwa Balochistan 60.25% 22.50% 13.39% 3.86%
  • 48. THE 2ND NFC AWARD 1979 Punjab Sindh Khyber- Pakhtunkhwa Balochistan 57.97% 23.34% 13.39% 5.30%
  • 49. THE 3RD NFC AWARD 1985 The third NFC award 1985 as of its previous 1979 award failed to produce any fruits. The resource distribution from divisible pools remains same as of 1974 up to 1990.
  • 50. THE 4TH NFC AWARD 1990 • After almost 16 years of break in declaring a consensus NFC award, the 1990 NFC award came up with some positive recommendations in April 1991 under the democratic government of Prime Minister Nawaz Sharif. • The most significant development under this award was the expansion of the divisible pool. Still population remained the sole element for revenue sharing criteria in the NFC award.
  • 51. • The sharing of the divisible pool between federal and provincial governments continued to remain at 20:80 percent, respectively. Punjab Sindh Khyber- Pakhtunkhw a Balochistan 57.88% 23.28% 13.54% 5.30%
  • 52. THE 5TH NFC AWARD 1996 • The shares in 5th NFC awards remained the same Punjab Sindh Khyber- Pakhtunkhwa Balochista n 57.88% 23.28% 13.54% 5.30%
  • 53. THE 6TH NFC AWARD 2000 • Provinces were demanding for higher share in the divisible pool (up to 50 percent) as well as the diversification of the distribution criteria.
  • 54. THE 7TH NFC AWARD
  • 55. THE 7TH NFC AWARD 2010 • Provincial share of the divisible pool would increase from the present 47.5% to 56% in the first year of NFC (2010-2011) and 57.5% in the remaining years of the award under the vertical distribution of resources • Share of Provinces was approximately Rs.39 billion • The federal government has agreed to cut tax collection charges from 5.0 per cent to 1.0 per cent and this amount would also be added to the divisible pool
  • 56. MEASURES TO BE TAKEN • (1) Backwardness and development gap • (2) Inverse income distribution (rural urban income disparity) • (3) Natural resource endowment • (4) Revenue generation/revenue collection • (5) Population density • (6) Poverty • (7) Area • (8) Non-formula transfers • (9) Environmental consideration
  • 57. REFERENCES • www.finance.gov.pk • www.fbr.gov.pk • www.statpak.gov.pk • www.wikipedia.com • Economy of Pakistan, Saeed M. Nasir