economic & business review [220609]

8/8/2019 Economic & Business Review [220609]

1/135

Economic & Business Review [Monday, June 22,

2009 ]

Addressing fiscal anomalies

By A.B. Shahid

Monday, 22 Jun, 2009 | 03:19 AM PST |

Taxpayer response to several taxes andprocedural change clauses in the Finance Bill 2009

has been harsh. Already, the government has

promised to withdraw or soften their impact.

But the big worry is the governments over-

reliance on debt. According to the Advisor on

Finance, external debt (including $3.6bn lent byIMF thus far) is now $50.1 billion. Another $4

billion would be borrowed from the IMF as per

the current agreement raising the debt to $54.1

billion. After repaying nearly $3.6 billion during

FY10, the debt could come down to $50.5 billion

but would still be higher than its June 2009 level.

Suspecting the fiscal deficit to exceed the planned

Rs722 billion, and fearing delay in or non-receipt

of aid promised by FoDP, Mr Shaukat Tarin is


2/135

advocating a new $4.5 billion IMF facility. This

loan could inflate the external debt to $55.5 billion

or Rs4.60 trillion (at Rs81/$). Whether this option

will be exercised despite receiving a total of $1.8billion in aid from the US after the passage of the

Kerry-Lugar, is unclear.

The domestic debt is now Rs3.72 trillion. After the

budgeted borrowing of Rs458 billion and planned

repayment of Rs300 billion in FY10, this debt will

exceed Rs3.88 trillion. Thus, the total debt (Rs8.48

trillion) would form 58 per cent of the Rs14.58

trillion GDP inclusive of the 3.3 per cent growth

expected in FY10. The total debt, and external

debt therein (even at Rs81/$) exceeding the

domestic debt by 18 per cent, are worrisome

prospects.

Yet, nothing significant was proposed to mobilise

domestic resources. Ten per

cent tax on profit from all types of savings a

disincentive will continue. Atop thereof, the

budget didnt offer incentives to expatiatePakistanis to shift their foreign currency deposits

to Pakistan although, at present, profit rates on

foreign currency deposits inclusive of a premium

could be the cheapest source.


3/135

The lopsided Finance Bill makes the 3.3 per cent

GDP growth and a slowdown in the rupees slide

very uncertain. The major deficiencies of the billare not taxing the sectors that have the capacity for

paying, but taxing commodities/sectors whose tax-

inflated prices will have a snowballing effect that

could thwart all attempts at lowering inflation and

stabilizing the rupee.

The most worrisome is the carbon tax on

petroleum products (even if CNG is exempted

from it) and a 10 per cent hike in power rates.

These tax increases will push up the price of

almost everything since, in one way or another,

energy forms a part of their cost as does the costof transporting them to consumer markets. Such

tax hikes have served as a cover for unchecked

profiteering by distribution channels that have

been fuelling inflation.

A key option exercised for increasing exports is to

allow faster depreciation (90 per cent in the firstyear) on power generation equipment that

exporters must buy to run their factories full-time.

But given the steady depreciation of the rupee and

high mark-up rates, exporters cant benefit from


4/135

it. What they need is uninterrupted power supply,

which the state cant promise.

Export indenters (who market for export orders)must now pay five per cent tax on their earnings

compared to one per cent at present. How will this

nudge them to get more export orders is

anybodys guess. Exporters utilise a lot of the non-

fund-based banking services on which Federal

Excise Duty has been raised to 16 from 10 per

cent. Both export indenters and banks will pass

their new tax load on to exporters.

Doing away with minimum tax and requiring

trading houses to submit tax returns for assessing

the final tax liability has caused a storm because it

accompanies organisational re-structuring of theFBR that empowers Income Tax Commissioners

(ITCs) with extended authority for fixing tax

liabilities. Changes in the timeframes for settling

tax disputes made this move more questionable.

Earlier, appeals had to be settled within 120 days

from the end of the month in which they werefiled. If a decision wasnt taken within 150 days

thereafter, the taxpayers position was deemed as

accepted. Taxpayers only had to send a reminder

during the last 30 days. Now the 120-day period


5/135

will start from the date the petition is filed but if a

decision isnt taken within 120 days thereof, the

taxpayer must keep waiting for it.

Time frame for disposal of refund applications has

been increased from 45 days to 50 days.

Appointment of Alternative Dispute Resolution

committees will now take 60 instead of 30 days.

But the new profile of the appellate tribunals is

the oddest; these courts will now be presided over

by ITCs. No longer will an accountant, a judicial

officer and the ITC sit on the bench.

Banking sectors demand for tax relief on loan

losses has virtually been ignored. The relief is one

per cent of the classified loans, which was earlier

construed as one per cent of total loan portfolios.Both bases are unfair because one per cent of even

the total loan portfolio would be grossly short of

the banking sectors NPLs that now form 11.3 per

cent of the total outstanding credit.

The claim that the relief is in line with SBP

Prudential Regulations is misleading. The virtualabsence of tax relief on NPLs classified in the loss

category (i.e. overdue by two years) will adversely

impact the banking sector. According to Ford

Rhodes Sidat Hyder & Co., denial of the sectors


6/135

valid tax relief demand potentially challenges the

continuity of some banks.

While the upper limit for tax exemption of salaryincome has been raised to Rs0.2 million, those

earning over Rs8,650,000 a year will still be taxed

at a paltry 20 per cent. In sharp contrast thereto,

non-salary earning individuals getting anything

over Rs1.3 million in a year will be taxed at 25 per

cent. But, salaried taxpayers will have to pay a tax

retrospectively (i.e. on their 2008-09 earnings) to

assist in IDP rehabilitation.

Teachers/researchers employed by non-profit

institutions or institutions approved by a Board of

Education, University or HEC, or serving in

governments research institutions were earlierentitled to 75 per cent relief in their tax liability.

That relief has now been cut to 50 per cent. How

much revenue this cut will generate was not

disclosed in the budget.

Despite all this, income tax on retail, wholesale

and corporate sectors, share-trading, and realestate remains unchanged. Income from

agriculture stays tax exempt. In a post-budget

seminar in Lahore on June 17, the Advisor on

Finance admitted that some of the anomalies in


7/135

the budget and the Finance Bill escaped his

attention, and promised to redress them; lets

hope he does so.


8/135

Budget a non-event for industry

By Nasir Jamal

Monday, 22 Jun, 2009 | 03:19 AM PST |

The industry is unhappy with the government for

failing to reduce the cost of doing business, seen as

the key to industrial revival and for reinstating

minimum income tax in the federal budget 2009-

10.

The budget contains nothing substantial for the

industry. Things must get worse before they

improve, notes Almas Haider, a leading

manufacturer based in Lahore.

He forecasts more industrial closures and joblosses over the next one year. The heavily

indebted units incurring losses must close down.

The government would spring into action only

when things get out of its control, he says.

The federal government is looking for moderateeconomic recovery during the next financial year.

It projects gross domestic (GDP) to grow to 3.3

from the current years two per cent. Agricultural


9/135

growth will slow down to 3.8 from 4.7 per cent.

Industry is projected to grow by 1.8 from -3.3 per

cent besides some improvement in the services

sector.

Analysts feel that the GDP growth projection is

quite realistic in view of structural rigidities in

the economy like energy crunch.

The economic growth revival largely hinges on

the performance of the manufacturing sector and

security environment, Mohammad Imran Khan,

a Karachi-based analyst says.

The government has announced setting up of a

Rs40 billion Export Investment Support Fund

(EISF) to rev up industrial production. But it hasyet to formulate its modalities.

The EISF money is likely to go into long-term

projects like the establishment of warehousing

facilities, colleges, etc. Allocation of Rs32 billion

for the textile sector in the EISF is not enough.

The industry needs immediate, direct support toreduce its cost of doing business, All Pakistan

Textile Mills Association (Aptma) chairman Tariq

Mahmood argues.


10/135

Though the budget carries a few steps to slash the

cost of car makers and cement producers, it has

little to offer to the textile industry, which earns

nearly 60 per cent of export revenue andcontributes nine per cent to GDP and is the largest

single employer of non-farm labour.

The value-added, downstream textile producers

were expecting cash subsidy in the form of

research & development (R&D) allowance. But no

allocation is made for that in the budget. Besides,

the amount allocated for three per cent subsidy on

interest rates for spinning has been cut to Rs500

million from Rs810 million. The budget abolishes

federal excise duty (FED) on imported viscose

staple fibre but it is going to leave negligible impact

on the industry.The key issue of 4.5 per cent dutyon the import of polyester staple fibre to protect

local manufacturers continues to plague the

spinning industry.

The soaring power and gas tariffs are likely to put

additional burden on the industry and squeeze the

gross margins of the industry, says Imran. He is ofthe view that structural imbalances including

power crunch will continue to hamper efforts for

industrial revival.


11/135

Analysts expect the textile industry to remain under

pressure on account of higher

cost of business as well as contraction in domesticand global demand.

Not only that the government hasnt given the

industry, it has re-imposed minimum (turnover)

tax (0.5 per cent on local sales and one per cent on

exports) on all producers no matter whether they

are incurring losses or making profit. I will have

to pay around Rs5 to Rs6 million tax although I

am accumulating losses and also face harassment

at the hands of the tax collectors, says a spinner.

The government had removed the condition to pay

minimum tax in the outgoing years budget. It hasostensibly been brought back with a view to shore

up tax revenue to 9.6 per cent from nine per cent

this year.

The return of minimum tax amounts to

penalising exports, Tariq says. We dont yet

know if the government intends to actually helpthe industry and exporters in the present

transition from loss to stabilisation and

profitability.


12/135

He, however, is glad that the government has taken

important step to stall smuggling of textiles from

China.

Ijaz Khokhar, a readymade garments exporter

from Sialkot, is critical of the government for

failing to stop the rot in the manufacturing.

Instead of picking Fatas unpaid electricity bills

of Rs80 billion, the government should have

pumped this money into the industry and exports

for quicker economic revival, he argues.

He does not see industrial revival in the short-

term and predicts the conditions to worsen in the

months to come. There is little likelihood of any

increase in exports even next year, says Ijaz.

Almas is of the view that interest rates must be

reduced to spur industrial growth and overcome

the economic woes. You can also control inflation

by improving supply side chain, he says. But the

industrial revival is not a priority with the

government, he complains. Imran says the

government would not be able to bring downcredit cost substantially because of International

Monetary Fund conditions.

Leading Lahore-based builder Akber Sheikh does


13/135

not see the reduction of federal excise on cement

by Rs200 per tonne to Rs700 to spur construction.

Cement producers had already raised their price

by Rs15 per bag in anticipation of this reduction.So what impact will it create even if now they

reduce the price by Rs10 per bag?, he asks.

But the analysts say the public sector spending on

infrastructure development -- construction of

dam, power projects, buildings, etc, and

rehabilitation of internally displaced persons

(IDPs) would help spur construction activity and

boost industrial growth.

Car industry is glad on the fiscal incentives for it.

I hope the reduction in car prices will go a long

way in stimulating sales. But the governmentshould also have forced assemblers to increase

localisation of parts to support the auto vendor,

notes Nabeel Hashmi, an auto vendor.

Imran says overall the budget has been a non-

event for the industry, which requires government

help, removal of bottlenecks related toinfrastructure, and a long-term policy to make it

competitive if it must revive.


14/135

Poverty reduction: rhetoric and the reality

She neatly braided hair of her daughter, Marium,10. Shahinas two toddlers sat in her lap and the

rest of three children were twisting and turning on

the Ralli (padded bed sheet) spread on the

footpath, on a bright June Karachi morning.

What drove her family out of the privacy of home

on a street? Answer is: abject poverty.

Her husband claims to be a motorcycle mechanic.

The family migrated to Karachi from Multan last

year and has been living on the side path next to

Zamzama Park at Neelum Colony in Karachi.

Jewa, the mechanic told Dawn that his unsteadylow income has forced him to migrate and live off

road. He had to also to give away one of his

daughters who was fussy. It was not clear if the

child was sold or given in care of a prosperous

family.

Jevas family has been surviving for the last abouta year on generosity of the residents of the

locality. He was not willing to leave the place and

move to some shanty settlement where his equals

live as it would deprive him of alms and material


15/135

help that he manages here to sustain his big family

of small children. Where even bare sustenance is

uncertain, education cannot be on agenda. The

health and hygiene of the family is up to thereaders to imagine.

This is a perfect example how economic hardships

render even a semi-skilled worker, who could

have been supporting his family, into a parasite

living off on others fruits of labour.

The poverty survey is not out as yet but the IFIs

estimated poverty has risen by over 10 per cent in

just last two years falling anywhere between 33 to

36 per cent. It makes up over fifty million people.

The allocation to poverty related programme atconsolidated Rs245 billion (BISP Rs70 billion,

IDPs Rs50 billion, health 30 billion, education

Rs61 billion, population welfare Rs4 billion) in a

federal budget of Rs2.48 trillion is a pittance of

what is required to address the issues of social

exclusion.

The misguided stabilisation strategy in a

shrinking economy, pursued in 2008-09 under

IMF tutelage drove thousands like Jeva out of

their homes and in the streets to suffer.


16/135

The government does not contest that poverty is

increasing. Over the last two years, people were

retrenched in thousands from shrinking industrialand other business concerns.. .

The self-employed petty workers such as small

time mechanics, tuition teachers, beauticians, etc

are unable to cope with rising costs and declining

demand for their services joined the swelling

numbers of unemployed. People had to pull their

children out from many small private schools

which were closed.

Workers lost jobs in construction activities; media

workers settled for half their wages as media

houses readjusted with fall in advertisingrevenues; hundreds of lower staff was driven out

of brokerage houses and mutual fund industry.

Young and educated mounted a search for

patrons in political parties as their friends and

relatives failed to find them placement. If crime

rate has increased, you need not look far for anexplanation.

Shaukat Tarin, de facto finance minister, in the

post- budget press conference, said: There is


17/135

special focus on social sector development and

poverty alleviation and the government is

planning to enhance expenditure on education,

health and infrastructure development. We aredevising a strategy to increase budget to health

and education sector to about 7-8 per cent of the

GDP during the next five years. The support

offered by the friends of democratic Pakistan

would be spent on these sectors.

Tarin blamed the last regime for irresponsible

behaviour that aggravated macro economic

challenges for the current government. He

mentioned global economic crisis particularly

commodity and oil price escalation for added woes

of economic managers who were forced to slash

development spending to achieve stability. Theadvisor boasted of his policies that reigned in the

trend of rising inflation and controlling deficits

beside apt agriculture pricing mechanism that led

the sector to perform better than expected.

He and his advisors had no explanation why less

than appropriate allocations were made for socialsector. They avoided giving out the comparable

measure of allocations to the social sector in the

budget.


18/135

The budget speech of Hina Rabbani Khar or the

budget brief provided to the media did not show

the allocations as percentage of GDP.

The advisor was not able to give a satisfactory

reply to a question on the Millennium

Development Goals that failed to find even passing

reference in the budget.

In the absence of progress report, no one can tell

where the country stands against bench marks set

for the last three years. It is not so difficult to

guess though. Pakistan was at the bottom among

its peers in the region when the economy was

growing at six per cent and above.

The last millennium report assessed progress vis avis goals and targets made in the year 2006. The

queries made by Dawn revealed that the

democratic government rendered the Centre for

Research on Poverty Reduction and Income

Distribution, a project under the Planning

Commission redundant by replacing the staff with

a set of political appointees who have not beenable to bring out a single report.

It is not wise to undermine the power of an

informed mass of people. It is nave to try to test


19/135

their patience by ignoring their concerns

indefinitely. No power intrigues worked. In the

end it was the street power that clinched the

reigns of government from the military rule andpassed it on to an elected dispensation, said a

political economist.

People displayed great restraint and endured

pain all through 2008-09 to give the democratic

government a chance to right the wrongs. The

democratic goodwill, however, must not be taken

for granted. There is need for Gilani government

to display greater sensitivity to the problems faced

by the multitude. If people can install a

government they can also bulldoze it concluded

the commentator.

The senior government functionaries find the

analysis too harsh on a government struggling

with worsening security situation and a still

harsher international economic environment. It

is easy to trash all efforts of the government but

difficult to deliver under constraints that the

democratic government works. Yes allocation tothe social sector might not be enough but low

inflation will improve the purchasing capacity of

poor families and transparent system of

distribution of Rs1000 to deserving marginalised


20/135

families will provide some relief, a PPP

parliamentarian asserted.

Let the growth pick up and you will see that thequality of our governance will be better than that

of the government of Musharraf-Shauket Aziz

that excluded the majority from benefits of

growth, said another Jiala.


21/135

Upgrading farmer service centres

By Tahir Ali

Monday, 22 Jun, 2009 | 03:18 AM PST |

To increase productivity and income of farmers,

the NWFP government launched farmer service

centres (FSCs) a few years ago.

FSC is an organisation of the farmers for thefarmers by the farmers. It creates linkages

between farmers and public/private line

departments and associations and aims at the

capacity-building of farmers. The provincial

government has spent Rs255 millions so far on the

FSCs.

There are around 45,000 members of the FSCs.

Farmers can become FSC members after paying

an enrolment fee of Rs100 and a share-money of

Rs500 each. The government provides a matching

grant equal to the farmers share.

Against the minimum number of 200, the current

FSC membership ranges from 500 to 2,000. But

the overall FSC membership is very small

compared to 1.356 million farms in the province.


22/135

Growers complain that the executive body (EB) of

the FSC is supposed to serve as a bridge between

the general body (GB) and the managementcommittee (MC), but interaction between them is

not a regular feature. In some areas, the GB and

EB members pursue their individual interests

which may weaken the system.

The MC is supposed to take all important

decisions but in effect, 75 per cent of all FSCs are

predominantly managed by agriculture officers

because of their final say in financial matters. This

goes against the FSC by-laws that provide

autonomy to these establishments.

In 2007, model farm services centres (MFSCs)were opened in each district of the NWFP. The

government provided Rs1 million endowment

funds to each entity. It also constructed a building

complex containing offices of all relevant

departments along with warehouse, equipment,

machinery, training and conference hall. A

president, invariably a farmer, heads the MFSC.

MFSCs have been built in 22 of 24 NWFP

districts. Kohistan is yet to have one while that of

Batagram is under construction. Unfortunately,


23/135

those in Malakand division are non-functional

these days

The MFSC is registered under CooperativeSocieties Act. An official says the government

intends to enact a law to give sanctity and

credence to the entity and its resolutions.

The NWFP Project Director of MFSCs Rasool

Mohammad said the project was for a three-year

period and after that the MFSCs would be able to

run on their own. This objective will be obtained

through consultation and training of farmers, he

added.

He revealed that MFSCs provided 22,500 bags of

fertiliser at half of the market price to itsmembers last year when there was an acute

shortage of the commodity. Quality wheat seeds

and other inputs were also supplied on official

prices. These services are sources of income not

only for MFSCs but also save time, energy and

money of farmers besides expediting the pace of

work and services, he said.

He said seven departments agriculture extension,

agricultural research, water management, soil

conservation, cooperative inspector, water and soil


24/135

testing, livestock/poultry and plant protection will

have offices in MFSCs and provide services

through MFSC under the same roof. Some

departments, he said, were yet to shift to theMFSCs.

Millions of rupees are available with the FSCs. If

these funds are spent judiciously with the

technical advice and expertise provided by the

government, it will go a long way in development

of agriculture in the province, he believed.Asif

Ali Jah, a farmer and president of MFSC

Haripur, told this scribe that the MFSC was a

revolutionary idea which, if expanded, would

solve agriculture-related problems.

We provided cheap inputs, modern machineryon rent and even interest free loans in form of

inputs that had 100 per cent recovery ratio. We

also provided fertiliser worth Rs1.8 millions last

year. We have also booked a large quantity of

DAP for the Kharif season, said Jah.

Out of the seventy per cent of Haripurs onemillion population were farmers, he said just

1,529 farmers had joined MFSC. Jah, however,

claimed that his was the only MFSC in NWFP

that had 70 female farmers as its registered


25/135

members.

Jah demanded fertiliser dealership and setting up

of a provincial organisation for MFSCs. Smallprojects for value addition should be planned and

specialists in various fields, like poultry in

Mansehra, should be nominated for all MFSCs.

Hafiz Minhajuddin, the president of MFSC Laki

Marwat said that farmers need quality inputs,

exposure to modern farming techniques and

machinery, and availability of credit support.

MFSC coordinates between growers and

government. It provides cheap agriculture inputs

and services. It provides farmers guidance and

marketing services for their outputs, which in-

turn, increases their incomes, said Minhaj.

Malik Jamshed, president of MFSC Mardan, said

MFSC provided wheat seeds last year at Rs1,600

per bag as against Rs2,200 market price. Member-

farmers were sold a bag of urea at Rs670, much

below its market price of around Rs1100.

He pleaded for processing and cold storage, seed

certification, soil and water testing facilities for

MFSCs. The government should give endowment

fund of Rs5 million to each MFSC for purchase of


26/135

inputs and machinery. Maximum limit for

farmers from MFSC fund should be enlarged and

period of loan recovery extended. All departments

should be asked to cooperate.Jamshed demandedearly construction of cattle-farm and cattle-colony

in Mardan. The government has built a large

building for our MFSC. But it is agonising that all

departments except agricultural extension are yet

to join their offices in MFSC here, he lamented.


27/135

Paltry allocation for agriculture

By Ahmad Fraz Khan

Monday, 22 Jun, 2009 | 03:18 AM PST |

THE allocation for agriculture in the Punjab

budget has been meagre. Of Rs175 billion annual

development plan (ADP), the agriculture got only

Rs3.2 billion. A mere 1.8 per cent of the overall

development outlay has been made for a sector,which forms 22 per cent of the provincial GDP,

provides around 45 per cent of employment and is

professed priority area of national and provincial

policy makers.

There is another way to look at importance of

agriculture. The sector yielded some 2.7 milliontons additional wheat this year, which, at current

price is worth Rs62 billion. It produced 0.5 million

tons extra rice some 3.7 million tons against

normal production of 3.2 million tons. These fours

cropswheat, rice, grain and maize--have

benefited the economy by Rs113 billion during lastsix months.

Punjab has fiscal space for development during

the coming year, which could have easily been


28/135

diverted to development of farming had the

agriculture department better capacity to deliver.

Last years budgetary allocations and subsequent

spending show where the departmental capacitystands: out of the total budget of Rs3 billion, it

spent Rs1.6 billion. If the last years left over is

carried forward, the new allocation would stand

only at Rs1.8 billion.

Barring the importance of taking cotton to non-

traditional areas and growing it on pressurised

irrigation, which the department has advocated

and got money for it, one can argue that all other

major issues have been ignored.

Take the example of storage crisis which is

essential for safe stocks (read food security). Theprovince has 2.2 million tons of indoor, not

modern or temperature controlled, storage

capacity, whereas it needs at least seven million

tons of such storage capacity to ensure regulated

grain supply and buffer stocks. This year, it

purchased six million tons of wheat, four million

tons of which are lying in the open.

Given the changing weather pattern, with sudden

and heavy showers becoming a routine, even if one

million tons of wheat gets affected, it would cost


29/135


30/135

on quick political gains rather than calm, cool,

calculated planning, especially when it comes to

agriculture.

Agriculture credit has always been a problem for

farmers in Punjab. The provincial government

has simply chosen to keep quiet on the issue

despite owning two banks the Bank of Punjab

and Punjab Cooperative Bank. There has been no

mention of the issue in the entire document.

Banking for agriculture is a commercial activity

because it entails no subsidy on mark-up. But it

contributes immensely to agricultural economy.

Nor has the government been able to re-direct

focus of the BoP towards agriculture.

Punjab has pathetic marketing infrastructure,

which is out of the budget focus. No money has

been spared for developing marketing network.

Its premier agency Punjab Agriculture

Marketing Company (Pamco) for developing

such infrastructure has not been able to perform

with three new heads in the last one year. It doesnot have even one project to its credit for the last

five years, nor has it developed any alternative

mechanism.


31/135

An allocation of Rs1.2 billion for research augurs

well and one hopes that Punjab Agriculture

Research Board, which has not been able to

perform during the last two year, pulls its socksup this year. The government needs to ensure that

its money is well spent.

The repeat of subsidised tractor scheme is also

heart-warming for Punjab farmers. The

government distributed 10,000 tractors last year

and plans to distribute 10,000 this year at a cost of

Rs2 billion. Its transparent distribution helped

farm mechanisation..

Water management allocation (Rs10 billion),

though less than Rs11.5 billion last year, is still a

substantial amount and should he able to helpbetter water distribution in Punjab. The

government plans to spend 90 per cent of the

amount on on-going projects but it would

undertake eight new projects to improve

efficiency. Some 200 small dams in upper parts of

the province must be of great help at the local

level.

In final analysis, the provincial budget seems to be

run of the mill document, which tries to keep

the momentum of on-going schemes rather than


32/135

breaking new ground. Tragedy with the provincial

agriculture, however, is that traditional methods

would not solve problems. It needs innovative

thinking, out of box solutions and sustained, long-term commitments. The proposed budget,

however, fails on all these accounts.


33/135

Unfriendly environmental practices

By Mohammad Niaz

Monday, 22 Jun, 2009 | 03:18 AM PST |

Environmental profile is affected adversely by

unfriendly environmental practices. And the

increasing deforestation and pollution, depleting

biodiversity, desertification, over-exploitation of

natural resources, receding glacial phenomena,water scarcity, degrading ecosystems etc are

posing a huge challenge to sustainable farming

and economic development.

These factors are likely to increase the countrys

vulnerability to climate change. Severe pressure

on meagre resources will adversely impact foodproduction and livelihood of millions.

That climate change will affect water regimes,

water reserves, and pattern of rainfall. Their

effects on vegetation and crops will be profound

both in rain-fed conditions and the tropical zonein the country because of scarce water. In 1999

and 2000, the drought caused sharp decline in

water tables and dried up wetlands, severely

degrading ecosystems.


34/135

The main source of water is the Indus River

system, one of the worlds largest contiguous

irrigation systems having associated ecosystems.This serves as a source of livelihood for millions of

people whether forest dependent communities in

the north, poor farmers and fishermen in the

Indus plains or fishing communities in the Indus

delta ecosystem. Changes in water flow will

degrade spawning streams.

The gradual glacier recession in the Himalayas is

projected to increase flooding within next two to

three decades followed by decreased river flows

up to 30 per cent to 40 per cent over a period of

five decades. This will dramatically cause

fluctuations in irrigation water with increasedsedimentation from the upstream.

Increased temperature and decreased

precipitation would register severe impacts on

water availability for crops with decreased crop

productivity and increased handling and

combating cost.

Mangroves constitute a significant part of coastal

biodiversity but besides continuous loss of

mangroves forest, the sea level rise due to global


35/135

warming and climate change will cause salt water

inflows which will tender profound damage to the

mangroves and their rich fish breeding habitats.

This will have deep repercussions on theassociated flora and fauna besides adverse

impacts on livelihood of people.

Marine ecosystems would also come under threat

of coral bleaching, increased invasive species, and

ocean acidification.

Not only livestock sector but agriculture sector

would largely suffer from the impacts of climate

change.

According to an FAO estimate, agriculture

accounts for 24 per cent of world output, and uses40 per cent of land area (FAO 2003). The cereal

crops rice, wheat and maize make up 85 per cent

of world cereal exports, and are thought to be

particularly sensitive to climate change (FAO

2003).

Because of water scarcity and heat stress,agriculture is highly exposed to the effects of

climate change that will affect farm productivity.

There is likelihood that the cotton belt will shrink

and shift further north to cooler regions. The


36/135

changed climatic scenario would affect planting

time, crop rotations with focus on new cropping

patterns and heat resistant crop varieties. With

decrease in rainfall by six per cent, net irrigationrequirements would increase by 29 per cent.

Reports indicate that decline in irrigated wheat

yield in semi-arid areas is expected to be in the

range of nine to 30 per cent for temperature

increases of one to four degree Celsius. Global

warming would have an impact on growing season

of plants and agriculture crops. There will be

shortened growing season length for wheat

(wheat-rice, and wheat-cotton, wheat-sugarcane

systems).

Dry land areas in arid and semi-arid regions aremost vulnerable to climate changes that would put

food security at a troubled threshold.

Because of the diversity in topography, soil type,

and climatic conditions, Pakistan supports a wide

variety of flora. However, due to biotic pressure

the natural forests are subjected to agriculturalexpansion, and other consumptive uses such as

fuel wood extraction, fodder collection, grazing of

livestock, and timber. Given these parameters of

social and economic nature, the climate change


37/135

would further impact the forest products and

services and important tree species such as deodar

and fir would suffer great loss.

With increase in temperature and changes in

weather, graziers would move towards higher

altitude grazing grounds and pastures for grazing

of their livestock in summer. This would not only

cause depredation of livestock by predators but

competition for food would be more among

livestock and wildlife species.

In addition reports indicate that global warming

has caused shifting of vegetation zones to higher

elevations with significant threats to biodiversity

and ecosystems. With future global warming,

large forest areas in northern mountain areaswould shift from one biome to another. Conifers

of cold and temperate zone would show

northward shift, pushing against the cold

conifer/mixed woodland. Weedy species having

ecological tolerance will have an advantage over

others. High-elevation tree species such as Fir,

Acer, and Betula prevail in cold climates becauseof their adaptations to chilling winters. Increase in

temperature would not only result in competition

between such species and new arrivals but will

also reduce resilience of natural ecosystems and


38/135

force migration of species through fragmented

habitat.

Flora and fauna having restricted ranges will alsoface increased threat of survival due to further

shrinking of forests and pastures, while changes in

precipitation will alter their structure. Climate

change would favour some invasive alien species

in different geographical zones..

Increased temperature would have large scale

effects on productivity, regeneration success, plant

growth, plant distribution, photosynthetic rates,

decomposition rates, incidence of fires, pest

outbreaks, diseases, and rate of mortality.

There is a great need to expand vegetation zone orgreen belts within the metropolitan cities and

towns that would not only help maintain

moderation in local or microclimate but it would

also help provide green spaces for recreation and

relaxation within the closed city environment.

That the climate change is an economic,developmental, and environmental problem, there

is a strong need for concerted efforts to adapt

strategies to mitigate climate change and

overcome environmental problems with a long-


39/135

term approach.


40/135

Punjab pledges lower borrowing

By Nasir Jamal

Monday, 22 Jun, 2009 | 03:17 AM PST |

In his budget speech Punjabs Finance Minister

Tanvir Ashraf Kaira pledged to reduce the

provinces reliance on foreign loans for its

development next fiscal year.

That represented a shift from the past and

reversal of the previous governments

development policies and strategy.

Well borrow Rs23 billion fewer this year as

compared to the last year, he had claimed. He

said the new coalition government of the PakistanMuslim League-Nawaz and the Pakistan Peoples

party led by Mian Shahbaz Sharif did not want to

add to the debt burden on the future generations.

But that was a year ago. Much water has already

flown from under the bridge.

Already into its second year in power, the

Shahbaz government has now decided to add at

least Rs34.6 billion to the provinces foreign debt

stock of Rs339.600 billion for financing its large


41/135

annual development programme at Rs175 billion

next fiscal. Another Rs10.47 billion will come from

the federal government under the head of foreign

project assistance. But this amount, say officials, isreflected in the capital account as debt in the

following year.

The budgeted foreign assistance, a senior

provincial finance department official told Dawn,

would come from multilateral lenders, the World

Bank and the Asian Development Bank as

budgetary support for governance reforms ($145

million), education sector reforms programme

($110-120 million) and the millennium

development goals ($100 million). In addition, the

government is negotiating a $70-80 million loan

with the ADB for its urban sector developmentprogramme. The officials are hopeful of

concluding the deal in the next few months.

Besides obtaining foreign loans, the province

intends to raise another Rs12 billion from

domestic commercial banks. This loan will also

be used for specific economic projects, theofficial said.

The initiative, argue the keepers of the provincial

kitty in the White Paper for the financial year


42/135

2009/10, to finance development projects through

borrowing reflects the resolve of the present

government to ensure intergenerational equity in

development expenditure, which requires that theusers of public goods should also pay for the

services and free current resources for social

sectors.

Few, if any, will disagree with the argument,

particularly when a government does not have

enough money to finance the huge development

needs of the people. The government must borrow

from all sources available to it to improve

economic infrastructure and provide quality

public services. The users do not mind paying for

the quality services.

But the problem is that governments try to show

these loans as their own resources and to conceal

the fact that these loans are used to finance budget

deficit. Thats why you did not find any mention

of these borrowings in the budget speech this

year, an analyst, who did not wish to give his

name, told this scribe..

He said the provincial government could actually

reduce its reliance on foreign loans for

development provided it developed a transparent,


43/135


44/135

insecurity.

A deficit budget with an outlay of Rs214.181

billion for 2009-10, presented by Senior Ministerfor Planning and Development Rahimdad Khan in

the provincial assembly, envisages Rs51.156

billion for Annual Development Plan (ADP).

The revenue receipts are projected at Rs211

billion, almost 40 per cent higher than the revised

revenue receipts of the outgoing financial year.

Similarly, against the anticipated resource

availability, the estimated expenditures in the next

financial year will be Rs214.181 billion, reflecting

a deficit of Rs3 billion.

However, officials say the shortfall in revenue

would be much bigger than projected because the

15 per cent raise in pay and pension, announced

for public sector employees, has not been taken

into the account.

NWFP Secretary Finance Abdul Samad Khanconcedes that the impact of increase in salaries

and post-retirement remunerations, which comes

to Rs3.9 billion, has not been included in the

budget; that means the real deficit would be over


45/135

Rs7 billion.

The budget deficit is likely to be still higher

because tax recoveries by the Federal Board ofRevenue (FBR), which forms federal divisible

pool, is not expected to grow as projected in the

federal budget that lead to lower transfers to the

provinces.

The provincial government, which drives almost

92 per cent resources from federal government

and foreign donors, has experienced a similar

situation this year as a shortfall of Rs4.36 billion

on account of federal proceeds has swelled the

deficit to Rs9.149 billion..

Besides, the ongoing conflict in the restiveMalakand region, which triggered a massive

displacement of over four million people has

added to the fiscal worries of the cash-strapped

province.

Expected mass exodus in the wake of military

operation in the adjoining South WaziristanAgency will multiply the financial woes and lead

to further contraction in revenue collection.

Of the total Rs211 billion revenue receipts, the


46/135

contribution of the provinces own receipts (POR)

is merely three per cent.

The provincial tax collecting agencies despiteconsuming millions of rupees in the name of

reforms are still unable to increase the recovery of

PORs which are on the decline instead.

In the outgoing fiscal year, the recovery target for

PORs was Rs7.4 billion, but the data showed it

stood at Rs6.42 billion.

Law and order has been propagated as one of the

top priority areas by the incumbent coalition

government in the wake of fallout of ongoing

military operation in the Malakand region, but

the budgetary proposals are not commensuratewith the challenges the provincial government is

facing..

A sum of Rs11.48 billion has been set aside for the

public order and safety affairs, of which Rs9.67

billion would be spent on improving operational

capabilities of the police.

This amount will be spent on creation of special

elite force, incentives to be offered to the

constables and compensation to the heirs of police


47/135

personnel killed in the line of duty.

The next year provincial budget carries a

developmental outlay of Rs51 billion, which isalmost 31 per cent higher than the outgoing fiscal

years figure.

Of which Rs32.54 billion would be spent on uplift

schemes being executed through provincial own

resources, Rs10 billion on federal projects, Rs5.74

billion on population welfare programme, Rs6.64

billion on foreign funded projects and Rs1.34

billion would be spent on uplift schemes to be

executed by the district and Tehsil governments.

However, execution of such an ambitious ADP is

still a big question mark keeping in view theimplementation capabilities of the line

departments. For example, the original ADP size

was Rs41.54 billion, whereas the revised estimate

put it at Rs39 billion.

Officials told Dawn that the Rs39 billion figure

was also exaggerated because the governmentsactual expenditures, as per the Civil Accounts,

showed utilisation of Rs17 billion as of May 31,

2009. This raises a question how the

implementation agencies would utilise Rs22 billion


48/135

in the current month?

The relief measures include the setting up of a

Provincial Employment Fund with Rs500 millionfor extending soft loans to unemployed youth,

particularly from the rural areas. The main areas

of lending would be small cottage industry, food

processing industry, small scale trading, setting up

of shops and hotels and procuring tractors and

auto rickshaws.

All the government servants from grade 1 to 16

have been exempted from paying professional tax

with effect from July 1, while ratio of Unattractive

Area Allowance for government employees,

serving in Chitral and Kohistan districts has been

increased substantially.

Every displaced woman would be given Rs10,000

on giving birth in government camps. One year

fee and boarding expenses of the displaced college

and university students would also be borne by

the government.

The Finance Bill 2009 contains proposals for

increasing the revenues from different provincial

taxes and duties including property tax besides

bringing a number of new sectors into the tax net.


49/135

The new sectors to be brought under professional

tax are restaurants, professional caterers, wedding

halls and chartered accountant firms. The move islikely to spark resentment from different

businesses and service providers, who are already

bearing the brunt of worsening law and order

situation.

President Sarhad Chamber of Commerce and

Industry (SCCI) Sharafat Ali Mubarik says the

upward revision of different taxes by the

provincial government would increase the

financial hardships of the business community.

The provincial government should curtail its

non-developmental expenditures instead ofincreasing the tax revenue to bridge its fiscal

deficit, he opines.


50/135

Sindhs rising development spending

By Saleem Shaikh

Monday, 22 Jun, 2009 | 03:17 AM PST |

The Sindh government has announced its own-

financed Rs75 billion Annual Development Plan

(ADP) for 2009-10, Rs20 billion higher than the

revised estimated spending of Rs55 billion for the

outgoing year.

However, the overall provincial development

spending rises to Rs113 billion after including

Rs15 billion for district governments, Rs16.6

billion PSDP grants and Rs6.3 billion foreign

project assistance.

According to officials in the provincial Planning

and Development (P&D) Department, the number

of total ongoing and new schemes is around 1,757.

Some Rs44.91 billion will be spent on different

ongoing schemes, while Rs30 billion for newschemes.

The ADP funds have been allocated in a ratio of

60:40 for ongoing and new schemes respectively.


51/135

The ratio is contrary to the Sindh governments

directive issued in March asking all departments

to work out the ADP on the basis of 80:20 ratio as

it was then agreed with the Asian DevelopmentBank that no unapproved scheme should be

included, P&D officials recalled.

All the provincial administrative departments

were told to get last years proposed schemes

approved for the ADP 2009-10 from the

Departmental Development Working Party

(DDWP) and Provincial Development Working

Party (PDWP) by March 31, 2009.

Officials in the revenue department said that as

the government had planned to finance the

provincial ADP from its own resources, it was (Rsin million)

decided to focus on increasing its own tax and

revenue receipts.

Sindh Finance Departments Additional Finance

Secretary (Resources) Dr Noor Alam told thisscribe that the revenue receipts for FY 2009-10

have been estimated at Rs118 billion from last

years Rs109 billion. The provinces own receipts

target has been set at Rs39 billion, straight


52/135

transfers Rs50 billion, district support grant

(including other grants) Rs27 billion and

production bonus deposited by exploration Rs1.6

billion.

On the other hand, the current revenue

expenditure has been estimated at Rs213.39 billion

from outgoing years Rs184.95 billion and the

current capital receipts at Rs21.3 billion from the

outgoing years Rs20.93 billion, he added.

The provinces Cash Development Loan (CDL)

on scrap and GST on services dues against the

federal government stands at Rs19 billion and

Rs11 billion respectively. The negotiations with

the federal government for the reimbursement of

around Rs39 billion are in final stages, which willhelp meet the development expenditures in new

fiscal year, sources in the provincial finance

department revealed.

Experts however stress that the focus should be to

avoid misuse of funds and improve quality of

work and unnecessary delays in launching of theADP.

Timely release of the development funds are not

only helpful for implementation of


53/135

schemes/projects on time, but also help generate a

significant number of jobs as well as create

momentum for development of industrial sector,

remarked Zulfiqar Halepoto, a social developmentexpert.

PPP leader Taj Haider says the revenue-starved

provincial government can easily generate huge

resources by launching low-cost housing schemes

for the poor. This will revive activity in the

industrial sector and generate employment.

Agriculture expert Taj Maree believes there is a

pressing need for increasing investment and

research in agriculture sector.

He stressed for strengthening of the irrigationsystem, introducing cost-effective latest

technologies and increase awareness in the

farming communities to help them enhance

production of different crops.

While Sindh Abadgar Board (SAB) Secretary

General Nawaz Memon regretted that Rs1.62billion were allocated for agriculture sector in the

outgoing fiscal year but merely Rs666 million had

been utilised by April 2009. The agriculture

sectors performance cannot improve if such a


54/135

treatment continued to be meted out to the

sector.


55/135

Regressive taxation

By Huzaima Bukhari & Dr Ikramul Haq

Monday, 22 Jun, 2009 | 03:17 AM PST |

The Finance Bill seems to have been designed to

tax the poor and protect the wealthy. The poor

will bear an increased burden of taxes, whereas

progressive taxes have not been levied on the rich.

It is almost tragic that the elected government also

placed its reliance on bureaucrats who are

responsible for our existing pathetic politico-

economic situation. Tax policy shows no concern

whatsoever for redistributive social justice. For

achieving the revenue target of Rs1.5 trillion for

fiscal year 2009-10, a resort has been made toregressive taxation: increasing the indirect taxes

and making presumptive taxes under the income

tax laws more stringent.

The lack of political will to tax the rich absentee

landlords exposes the tall claims of the so-calledpro-people budget, which is the most lamentable

aspect of the Finance Bill. PPP should have

prepared a sound tax policy through its own party

committees after taking a direct input from all the


56/135

stake-holders. Rather it has just relied on

bureaucrats and elitist experts (sic) who stand

completely isolated from the masses and who take

guidance from foreign donors. They are leastconcerned about the welfare of common people.

There has also been no fundamental tax

restructuring. The government has failed to use

tax policy as a tool for rapid industrial growth. No

effort has been made for achieving judicious

balance between direct and indirect taxes and

diverting the money from unproductive to

productive sectors by imposing heavy taxation on

idle money and passive investment.

Revenues, in addition to finance public funding,

are meant for distributive justice, which is animportant function of tax policy. Economic justice

relates largely to distribution of tax burden and

benefits of public expenditure. It is a component

of the broader concept of social justice and the tax

policy is a democratic way to influence the

distribution of income and wealth on desired lines.

The main ingredients of this policy can be (a)

progressive direct taxation of income, wealth, and

property transactions, (b) taxation of commodities


57/135

(customs duty, excise levy, and sales tax)

purchased largely by high-income groups, and (c)

subsidies (negative taxation) on goods purchased

by low-income groups.

We are moving from progressive to regressive

taxation which is bound to create a wide gap

between the have and have-nots. A successful tax

system reduces inequalities through a policy of

redistribution of income and wealth. Higher rates

of income taxes, capital transfer taxes and wealth

taxes are some means adopted for achieving these

ends.

There has been a gradual shift from equitable to

highly inequitable taxes and the shift to

presumptive and easily collectable taxes hasdestroyed the entire philosophy of taxes.

Regressive taxation has pushed more and more

people towards poverty line. In the absence of

industrial growth, neither the tax-to-GDP ratio

can be improved nor economic stability ensured.

Now widows, pensioners and senior citizens areasked to pay tax 10 per cent on income earned

from National Saving Schemes, whereas the rich

property developers are allowed to pass on the

burden of presumptive tax to the purchaser.


58/135

The tax proposals of the present regime are no

different from its predecessors in protecting those

having monopoly over economic resources. Thereseems no concern for expanding the tax base on an

individuals ability-to-pay, in the form of higher

income tax rates for higher income earners, estate

duty, and property tax. Rich industrialists and

businessmen pay meagre personal taxes but the

poor people are compelled to pay 16 per cent sales

tax. It is as low as 3-5 per cent in Japan and

Singapore which are affluent societies..

The priority of all governmentscivilian or

military alikehas been fixing of ambitious tax

targets in utter disregard to their impact on lives

of common people, productivity and economicgrowth. The government itself can hardly provide

any meaningful tax relief package to the common

people or to trade and industry [due to huge fiscal

deficit]. Nor can it achieve a satisfactory level of

economic growth [due to retrogressive tax

measures]. This is a vicious circle in which our

policymakers find themselves trapped. They willhave to find ways and means to come out of this

tangle.


59/135


60/135

monetary stimulus will hasten a decline of the

dollar. Investors often buy crude and other

commodities as a hedge against the risk of

inflation posed by a weaker dollar.

Earlier, the Organisation of Petroleum Exporting

Countries dropped its daily demand forecast for

2009 by 230,000 barrels, estimating that global

consumption would shrink to 83.8 million barrels

a day.

At the same time, some analysts were heartened

by the International Energy Agencys June 18

report, which forecast a slightly less severe cut in

global demand, making an upward revision of

120,000 barrels a day to total daily demand of 83.3

million barrels.

The rise in oil prices in recent months has raised

concerns that an increase in fuel costs could hurt

any recovery in the global economy.

World energy demand has shrunk since the onset

of the financial crisis for the first time in a quartercentury, bloating stockpiles in consumer nations.

Energy companies are also storing fuel on tankers,

with some 62 million barrels estimated at sea,

according to shipbrokers and traders.


61/135


62/135


63/135

high of $989.80 it hit earlier this months, as a

dollar rally dampened investors interest in gold

and made dollar-priced commodities more

expensive for holders of other currencies.

Among other precious metals, silver rose to

$14.22. Platinum was at $1224.0 an ounce, while

palladium was at $243.0. Both are, like gold,

tracking the dollar and overall interest in

commodities.

Copper

Last week, copper hit a near two-week lows as

doubts about the global economic recovery

renewed worries over metals demand Benchmark

copper on the London Metal Exchange was $4960a tonne on the close of June 16.

The metal used in power and construction earlier

dipped to $4,880, its weakest since June 4. A week

earlier, it hit an eight-month high of $5,388.

Industrial metals were little affected by data

showing that US consumer prices edged up inMay.

LME data showed copper stocks held in its

warehouses fell 1,875 tonnes to 283,175. That


64/135

compares with levels around 500,000 in February

and March. Cancelled warrants stocks already

tagged for delivery have also fallen to around

17,000 tonnes from levels near 55,000 tonnes inearly March.

Goldman Sachs (G.N) expects the current

downward movement in the price of copper to be

short-lived amid growing expectations of a

recovery in global economic growth, and it

targeted copper as $5,800 per tones by the end of

2010.

The investment bank kept its 12-month copper

price target at $4,800 per tonne, unchanged from

its May forecast. Copper for three-months

delivery MCU3 on the London Metal Exchangeclosed at $4,980 per tonne on June 16.

Africas top copper producer Zambia is facing big

power supply problems and this has affected the

copper production in the country which may

result in a dip in global output. If that happens,

price of copper may witness a surge with Chinanot stopping its copper stockpiling exercise.

The mines have been affected by the power cut,

but the quantum of the effects is yet to be given.


65/135

Copper mining is Zambias economic mainstay

and the mines are a major employer in this

southern African country of 12 million people.

Zambian economy has historically been based on

the copper mining industry. Output of copper had

fallen, however, to a low of 228,000 tonnes in 1998,

continuing a 3-year decline in output due to lack

of investment, and more recently, low copper

prices and uncertainty over privatisation.

In 2001, the first full year of a privatized industry,

Zambia recorded its first year of increased

productivity since 1973. The future of the copper

industry in Zambia was thrown into doubt in

January 2002, when investors in Zambias largest

copper mine announced their intention towithdraw their investment.

However, surging copper prices from 2004 to the

present day rapidly rekindled international

interest in Zambias copper sector with a new

buyer found for KCCM and massive investments

in expanding capacity launched.

China has become a major investor in the

Zambian copper industry, and in February 2007,

the two countries announced the creation of a


66/135

Chinese-Zambian economic partnership zone

around the Chambishi copper mine.

Today copper mining is central to the economicprospects for Zambia, but concerns remain that

the economy is not diversified enough to cope with

a collapse in international copper prices.


67/135

No breakthrough in resource mobilisation

By M. Iqbal Patel

Monday, 22 Jun, 2009 | 03:16 AM PST |

Finance Adviser Shaukat Tarin has said from

time to time that the burden of taxes should be

equitably shared by all. But this has not happened

in the Budget 2009-10.

Farm incomes continue to enjoy exemption from

tax that has a huge potential for revenue

generation .

Agriculture is also the sector that posted better

than expected growth of 4.7 per cent in the fiscal

year 2008-09.However, the salaried class isburdened with additional tax at the rate of five

per cent payable by individuals and association of

persons (AOPs) whose income exceeds Rs1 million

for tax year 2009 for the benefit of internally

displaced persons (IDPs). Besides, a new tax at the

rate of 30 per cent has been imposed on bonusincome of corporate executives for the

rehabilitation of IDPs.

This burden should have been shared equitably


68/135

for such a noble cause by the privileged class of

law makers and rulers also. The legislature,

judiciary, the armed forces, the president,

governors have been given relief from this levybecause their salaries, perquisites and benefits are

exempted from tax under the Second Schedule of

the Income Tax Ordinance 2001 (Ordinance).

Thus the budget continues to tax those who are in

tax-net. It did not broaden its scope to bring the

privilege class into the tax-net.

The capital gains on real estate transaction

continue to enjoy exemption from tax while the

rate of capital value tax on transfer of immovable

property has been enhanced from two to four per

cent. The genuine property owners would bear

this burden while the speculative and non-productive investors may find a way to escape

from this levy by transacting the property through

the power of attorney. Thus the government will

fail to curb speculative tendency and encourage

productive investment.

This would have an adverse affect on purchase ofimmovable property for real estate business under

the Real Estate Investment Trust Scheme. The

Securities Exchange Commission of Pakistan had

sought exemption from CVT on such properties.


69/135

The budget proposes removal of the five per cent

federal excise duty (FED) on sales of locally

produced vehicles to give relief to the rich classwhile it withdrew the exemption from FED on the

import of ware potatoes and onion, which are a

necessity for the poor who will have to bear the

burden of this levy. This measure has been taken,

as claimed by the minister of state, to provide

protection to growers. In fact, its main

beneficiaries would be special interests.

The government has undertaken Tax

Administration Reform Programme (TARP)

sponsored by the World Bank and the DFID. The

main focus of TARP has been on promoting

voluntary tax compliance through an enhancedlevel of tax-payers facilitation. The FBR has hired

costly foreign consultants for smooth

implementation of reforms. But the budget

reflects a policy shift. It has opted a reverse gear

tax policy to raise high tax revenue and has

reintroduced tax measures which were provided

in the (repealed) Income Tax Ordinance 1979.

Section 147 is to be amended to change the mode

of payment of advance tax by the companies and

association of persons on the basis of actual


70/135

turnover of the quarter instead of income. The

repealed ordinance had provided for appointment

of a firm of chartered accountants by the FBR to

conduct audit of any person. The Finance Bill2009, under reverse gear tax policy, proposes to

insert sub-section (1B) to section 210 whereby a

commissioner is empowered to delegate the

powers to a firm of chartered accountants for tax

audit u/s 177 and to obtain information, records

or computer etc u/s 176. It proposes to reintroduce

section 113 of minimum tax on the companies,

where no tax is payable or the tax payable is less

than 0.5 per cent of the turnover from all sources.

Presumptive tax regime has been abolished in case

of import u/s 148 and on export u/s 154 and u/s

153(6). The tax deducted at import stage, taxcollected by the authorised dealer on the proceeds

of export of goods by an exporter and tax

deducted from payment on account of services

rendered by the non-corporate taxpayers were

treated full and final discharge of tax liability of

importer and exporter respectively.

The tax so deducted has now been made minimum

tax meaning thereby that such tax would either be

adjusted against final tax liability to be

determined on finalisation of assessment or


71/135

refunded in case of final tax liability which is less

than the amount of tax so deducted at source.

Besides it, such taxpayers will now require to file

return of income instead of filing a statement.

A new tax has been imposed on the exporters

whereby the Collector of Customs has also been

authorised u/s 154(3C) to collect tax at the rate of

one per cent at the time of clearing of goods

exported. Thus an exporter will be required to pay

two per cent tax on value of goods, one per cent on

clearing of goods and one per cent on realisation

of export proceeds for the same goods. This will

discourage exports. Similarly rate of withholding

tax on import of commercial nature has been

enhanced from two to four per cent.

To broaden the tax net, it has been made

mandatory to obtain national tax number (NTN)

for purchase of property, obtaining commercial

and industrial electricity and gas connections and

opening of a bank account

Section 114 is proposed to be amended wherebyNTN holders or any person having immovable

property with an area of 50 sq. yd., a flat with a

covered area of 2000 sq feet or a motor vehicle

having engine capacity of 1000cc or more,


72/135

importers, exporters and service providers, shall

file normal income tax return. These measures

will promote documentation and broaden the tax

net. Salaried taxpayers whose income exceedsRs0.5 million or more shall file returns of incomes

along with proof of deduction of tax and wealth

statement. Though the scope of filing of return of

income has been extended to hunt for new

taxpayers, it would enhance the discretionary

powers of tax collectors. Similarly, powers have

been given u/s 121 to the commissioner to make

the best judgment assessment of a person who

does not file the prescribed statement of his

receipt u/s 115(5), and u/s 138 for recovery of tax

out of property through arrest of tax payer; the

scope of prosecution u/s 191 has been extended in

the case of those persons who have failed to file areturn of income etc. All these measures have a

negative aspect too as these would enhance the

discretionary powers of tax collectors.

These measures will virtually defeat the voluntary

self-assessment scheme envisaged u/s 120 of the

ordinance. It is suggested that the ordinanceshould provide a safeguard against counter

productive actions of the tax collectors and ensure

that the assessments are not be made under

duress.


73/135

With a view to give incentive to the manufacturer

who is registered under the Sales Tax Act 1990,

the bill proposes a tax credit at the rate of 2.5 percent of the tax payable u/s 65B to him ,provided 90

per cent of the sales are made to registered

persons.

The budgetary measures have failed to make a

breakthrough in revenue mobilisation and the

desired tax-to-GDP ratio may not be achieved.


74/135

Focus shifts to low cost housing

By Anand Kumar

Monday, 22 Jun, 2009 | 03:16 AM PST |

AFFORDABLE and low-cost housing have

suddenly emerged as buzz-words in the Indian

real estate sector. The industry was among the

worst-hit following the economic slowdown, and

both buyers and financiers disappeared from thescene.

During the boom years, most developers paid

virtually no attention to the lower-end of the

market. Builders were busy promoting sprawling,

three- and four-bedroom penthouses and

apartments, with fancy fittings and accessories ranging from Jacuzzis in bathrooms to terrace

gardens. Developers were also bidding record

sums for land that was auctioned by government

agencies in and around the major Indian metros.

But the global financial crisis, which has alsodecelerated the growth rate in India, came as a

major shock to real estate developers. Many were

left holding vast tracts of land for which they had

paid huge sums, hoping to build their land


75/135

banks.

Dozens of overseas developers and financiers

including from the US, Europe, the Gulf andSouth-East Asia had also entered into tie-ups

with Indian partners, promoting multi-billion-

dollar projects across the country. Consequently,

real estate prices zoomed, touching stratospheric

levels.

In Mumbais posh localities, apartments in

exclusive buildings were being sold at rates

upwards of Rs100,000 (about $2,000) a sq ft. Let

alone the middle-classes, most affluent people

could also not afford buying modest apartments in

south, central and western Mumbai.

Cities like Delhi and Bangalore also saw prices

soar to record levels in recent years, despite the

brisk construction activity. Techies working for

the information technology sector and other

fast-growing segments such as financial services

and telecommunications were among the buyers

who were fuelling rapid growth in the real estateindustry.

Hundreds of thousands of young Indians

employed in these sectors were earning handsome


76/135

salaries and had access to cheap housing loans.

The housing industry had never had it so good

and developers were on a roll.

But the global crisis had a severe impact on

Indias IT sector. Many have lost jobs in recent

months, and fresh graduates find it difficult to get

employment, especially in the high-wage sectors.

The liquidity crunch has also seen developers

starved for funds. Banks and other lenders are

hesitant to extend loans and international

partners including private equity funds and

venture capital funds are eager to off-load their

stakes.

Many of the top international developers arefacing problems back home and want to liquidate

their holdings in India. The result: some of the

most ambitious projects outside cities like

Bangalore, Mumbai, Delhi and Chandigarh have

been put on the back-burner. Real estate

companies are selling off projects or land parcels,

desperately trying to raise funds.

* * * * *

THE crisis has led many of the leading developers


77/135


78/135

homes at affordable rates. The company is

promoting a 70-acre township on the outskirts of

Mumbai, offering flats ranging from 300 to 465

sq ft priced between Rs400,000 and Rs700,000.

We have got a good response for this project,

explains Brotin Banerjee, managing director and

CEO, Tata Housing. The company has sold

thousands of forms for the first lot of 1,300

apartments. Over the next two years, Tata

Housing plans to build 15,000 low-cost homes in

Mumbai, Bangalore, Delhi, Chennai and Kolkata.

It has branded these units as Shubh Griha.

Banerjee expects the company would earn

revenues of over Rs7 billion in the next four years

selling low-cost homes. These would account forabout 20 per cent of its revenues; the premium

segment would get it 50 per cent of the revenues

and affordable (or mid-income) about 30 per cent.

The cost of construction for low-cost housing has

been pegged at Rs700 a sq ft.

Other builders are also rushing in with theirprojects. Unitech, the second-largest property

developer, has launched Uni Homes, which will

comprise modest apartments of 650 sq ft and

priced between Rs1 million and Rs1.5 million,


79/135

depending on the city where it is located.

The company, which has a land bank of around

8,000 acres, plans to invest Rs17 billion in buildingthese homes all over India.

Other developers that are quickly getting on to the

low-cost bandwagon include DLF the largest

realty firm in India Akruti City, Parsvnath,

Ansal API, Omaxe (all from Delhi), Puravankara

(Bangalore) and HDIL and Lodha (Mumbai).

* * * * *

INDIA has been facing an acute shortage of

housing for years. The current housing backlog

adds up to a whopping 25 million housing unitsand every year the number keeps growing. Most

developers have focused only on the upper-end of

the market, with the result that the middle- and

lower-classes have no options other than to live in

slum colonies or in tiny flats far from their work

place.

Lack of affordable housing has resulted in the

creation of shanty towns in all major Indian cities.

Organised gangs forcibly acquire vacant land

mostly owned by governments and other public


80/135

bodies develop slum colonies on them and rent

out units to the poor and migrants.

The land mafia in urban India has strong politicallinks to virtually all the parties and it becomes

impossible for authorities to clear up the slums.

Unlike in the developed world, Indian cities like

Mumbai also do not have a vibrant rental market.

Developers prefer selling off homes as the returns

are high, instead of renting out units.

Laws relating to land in India are also opaque and

most transactions attract controversy. The United

Progressive Alliance (UPA) government faced

massive criticism over its special economic zones

(SEZs) policy, with critics accusing developers of

these zones of acquiring hundreds of acres of landfor real estate purposes.

Acquisition of farm lands has also become a

controversial subject; Ratan Tata was forced to

move his Nano project out of West Bengal

following stiff opposition from a local politician

Mamata Bannerjee, who is now the railwayminister who objected to the transfer of land.

Mukesh Ambani of Reliance Industries, the

largest private sector company in India, has also


81/135

been facing problems relating to land acquisition

for his mega SEZ project outside Mumbai.

In the absence of land titles, clear holdings andtransparent deals, most land acquisitions are

shrouded in mystery and attract controversies.

Most state governments have failed to reform

land-related laws, thanks to the close links that the

land mafia has to many politicians.

When a government or a private sector player

decide to develop a new township, expressway,

SEZ or other major project, politicians get an

inkling and begin buying up land in its periphery.

Once work begins on the project, they hope to sell

the land at a premium, raking in huge profits.

In Bangalore, for instance, relatives of powerful

political families succeeded in stalling several

projects including the international airport and

a much-delayed expressway for years, as they

wanted to buy up vacant land in the surrounding

areas, before the work could be taken up.

The success of low-cost housing in India clearly

depends on how fast state governments are able to

reform land-related laws. Housing costs are high

in India mainly because of the exorbitant price


82/135

that developers have to pay while acquiring land.


83/135

Budget 2010: treading the same path

By S. M. Naseem

Monday, 22 Jun, 2009 | 03:16 AM PST |

The most specious defence of budget 2009-10 so

far ironically by a leading economist has been

that it was a war-time budget and it was not

possible to make any significant change in the

economic management within the confines of anannual budget.

On the contrary, it is in such times that

governments can undertake policy paths not

treaded before.

The Great Recession that the world economy isfacing today requires all countries to re-examine

the patterns of Pavlovian behaviour at all levels

personal, community, corporate and state - that

they have become conditioned to change them in

keeping with the new and emerging realities.

Unfortunately, such a change is hardly evident inthe new budget.

There was no dearth of rhetoric and pious

intentions in the long speech delivered by Ms


84/135

Khar, perhaps the youngest minister to present

the budget in parliament. The most stirring of

which was the quotation at the end of her speech

from Zulfiquar Ali Bhutto, our founder leader,delivered before she was born, exhorting

politicians to adopt A new look amid a new style

as the old ways will no longer appeal to the

people, even though she had not long ago served

in a cabinet post under President Musharraf.

However, her speech contained very little that was

new and different from the policies of his earlier

patrons. Indeed, it was full of excuses why the

government was unable to fulfil the promises it

made.

The reasons No, we cant -- implicit in thespeech are several, including policies of the past

governments, the need for stabilisation policies,

IM

economic & business review [220609]

Documents