Roadmap to Economic

Recovery & Sustainability

Great responsibilities have come to us, and equally greatshould be our determination and endeavor to dischargethem, and the fulfillment thereof will demand of us effortsand sacrifices in the cause no less for construction andbuilding of our nation than what was required for theachievement of the cherished goal of Pakistan. The time forreal solid work has now arrived, and I have no doubt in mymind that we will put our shoulder to the wheel and conquerall obstacles in our way on the road which may appearuphill.

The Shadow budget 2012 – 2013 by MQM is anegalitarian, no-nonsense & politically doableroadmap towards economic revival. If applied intrue spirit will go a long way to dynamicallyrevive and sustain the growth momentum of theeconomy in a very rapidly changing world orderand reducing the gap between the haves andhave not. It will improve productivity, createjobs, provide income earning opportunities andalleviate poverty.There is nothing that this country lacks either inhuman talent or in material resources.Pakistan’s only misfortune has beeninconsistency, disruptive policy changes, poorgovernance and a feudalistic mindset whenformulating economic policies.. There is aclassic need to politically build nationalconsensus on the need for continuity ofeconomic reforms and consistency in economicpolicies, so that we will be remembered as thosewho rescued, recovered and gave a sustainableeconomic future to the people & helpedPakistan in reclaiming true sovereignty.

Current State of the Economy

Roadmap to Economic

Recovery & Sustainability

GrowthGrowth

SustainabilitySustainability

FOUR Quintessential Factors Influencing our

Foreign Policy & Economy

SHADOW FEDERAL BUDGET

� The real Independence, Freedom and Sovereignty of a country is its Independent, Free and

Sovereign Economy.

� The Biggest Threat to Pakistan today is the continuing Downslide of its Economy.

� The Revival of Economy for Pakistan to have any chance to see a process of sustainable

Growth and Development for a Better, Secured and Prosperous Future, is pivotally essential

and the time to do it is now and hands on.

� MQM thus suggests a paradigm shift in setting out priorities for the forthcoming Federal

Budget in line with

� Quaid-e-Tehreek Altaf Hussain’s Economic Vision.

� Hence MQM’s Shadow Federal Budget for the year 2012-13 is presented for the National

Assembly and People of Pakistan to consider a nonconventional approach and to take a flight

off the beaten track.

� Shadow Budget for 2012-2013 has been prepared on the basis of budgeted position for the year

2011-2012 (Federal Government Budget). Except for certain expenses, actuals for 2011-2012,

are fundamentally the same.

The ultimate objectives and goals of the Shadow Budget is to

provide a sustainable road map towards

• Poverty alleviation, improving sustenance level for a common man reducing prices for essential items including transportation, Oil & Petrol, Utilities, etc.

• Reducing cost of doing business, improving exports competitiveness;

• Resolving Energy Shortages and settling of circular debt for ever crises;

• Incentive for ‘Investment, Industrialization and Growth’;• Improving possibilities of Employment; and

• Providing special support for Food and Energy.

• Bringing fiscal and Monitory Policies in alignment with each other.

SHADOW FEDERAL BUDGET

SHADOW FEDERAL BUDGET

2012-2013

MAJOR PROPOSALS:

� Income from all sources, above the taxable limit be taxed;

� Reduction in sales tax rate from 16% to 12%;

� Reduction of maximum duty rate on imports to 10-15% with a minimum of 5%;exception only with the approval of parliament;

� No duty or sales tax on machinery and raw materials essential for industries;

� Abolition of Petroleum Levy;

� Reduction in the basic ‘Discount Rate’ from 12% to 10%;

� Reduction of Federal Government Expenditures due to devolution and austeritymeasures;

� Improving governance of Public Sector Enterprises [PSE], prevent theirhemorrhaging and assign a role to the Private Sector in Pubic PrivatePartnership Models;

� Reducing corruption and improving efficiency of Federal Board of Revenue [FBR];

� Providing ‘Food and Energy Subsidy’.

� Reducing abuse of Afghan Transit Trade, Under-invoicing and curbing smuggling inPakistan.

� Social sector and human resource development on fast track through big investment

� Infrastructure development in primary and secondary cities on war footing basis to makethem engines of growth

� Promotion of organized micro-finance sector ,venture capital financing ,cooperativefarming ,agricultural reforms ,small medium enterprises, labor and value additionindustries etc

� Assigning a greater role to the overseas Pakistanis in the fast and sustainable economicdevelopment of Pakistan, for example creating public private partnership models withoverseas Pakistanis in housing sector including low cost housing scheme ,establishment ofIT parks ,industrial zones ,technology cities etd

� Last but not the least, the improvement of security environment through mobilization andgreater participation of communities.

SHADOW FEDERAL BUDGET

2012-2013

SHADOW FEDERAL BUDGET

2012-2013

EFFECTS OF PROPOSALS

� Reduction in prices of petroleum due to decrease in sales tax rate andabolition of Petroleum levy. [Approximate reduction of 20 percent].

� Reducing inflationary pressure. Inflation is effectively ‘Cost-pushed’.Reduction in petrol price and sale tax will reduce that pressure.

� Reduction in Government borrowings and cost of Government borrowingsdue to increased revenue and decrease in the discount rate.

� Mitigation of Energy Crisis because of Special Subsidy for Energy Sector.

� Possibility of settling “Circular Debt” and closing chances of its recurrence.

SHADOW FEDERAL BUDGET

2012-2013

EFFECTS OF PROPOSALS

� Promotion of Industry due to easy and cheaper availability of credit due toreduction of discount rate from 12 to 10 percent. [Availability of energy dueto resolution of Circular debts].

� Improving Equity in Taxation System by increasing the direct and indirecttaxes ratio [45:55 from 35:65].

� Saving of losses from PSE.

� Availability of basic food to poor people at ‘subsidized rates’.

WHERE THE

MONEY COMES

FROM

WHERE THE

MONEY SHOULD

COME FROM

FEDERAL GOVERNMENT RECEIPTS

DOMESTIC

DEBT NON

BANKS

26%

DOMESTIC

DEBT

BANKS

27%

FOREIGN

DEBT

36%

SURPLUS

FROM

PROVINCES

11%

INCOME TAX

19%

SALES TAX

21%

CUSTOM DUTY

5%

FEDERAL

EXCISE DUTY

4%

PETROLEUM

LEVY AND

OTHERS

3%

NON REVENUE

RECEIPTS

16%

0%

PUBLIC

ACCOUNTS

RECEIPTS [NET]

4%

BORROWINGS

28%

DOMESTIC

DEBT NON

BANKS

35%

DOMESTIC

DEBT BANKS

47%

FOREIGN DEBT

18%

INCOME TAX

27%

SALES TAX

20%

CUSTOM

DUTY

7%FEDERAL EXCISE

DUTY

5%

NON REVENUE

RECEIPTS

17%

0%

PUBLIC ACCOUNTS

RECEIPTS [NET]

5%

BORROWINGS

19%

WHERE THE MONEY GOES WHERE THE MONEY SHOULD GO

FEDERAL GOVERNMENT EXPENDITURE

DEBT SERVICING

18%

FOREIGN DEBT

REPAYMENT

7%

DEFENCE

EXPENDITURE

12%

SUBSIDIES /

TRANSFER /

GRANTS

12%

FEDERAL

GOVERNMENT

EXPENSES

10%

DEVELOPMENT

EXPENDITURE

11%

TRANSFER TO

PROVINCES

30%

DEBT SERVICING

16%

FOREIGN DEBT

REPAYMENT

7%

DEFENCE

EXPENDITURE

12%

SUBSIDIES /

TRANSFER /

GRANTS

11%FEDERAL

GOVERNMENT

EXPENSES

8%

DEVELOPMENT

EXPENDITURE

12%

TRANSFER TO

PROVINCES

34%

FEDERAL BUDGET

2011-2012 [PROJECTED 2012-2013]

Federal Budget As per Shadow Government

Government Budget Budget Expected /

of Pakistan Document % Proposed % Proposed %

Revenue Receipt [Note 1] (Table A) 2,731 3,530

Public account receipt (net) (Table A) 164 200

Total receipts 2,895 100% 3,730 100%

Less: Transfer to Provinces (Table A) (1,203) 42% (1,550) 42%

Net revenue receipts 1,692 2,180

Expenditure [Note 5]

- Current expenditure on revenue account 2,315 2,185

- Current expenditure on capital account 69 70

2,384 82% 2,255 60%

- Development expenditure [Note 5.2] 451 16% 500 13%

(Table B) 2,835 98% 2,755 74%

Deficit (1,143) 39% (575) 15%

- Domestic debts non-bank 300 200

- Domestic debts banks 304 300

- Foreign debt 414 75

- Surplus from provinces 125 -

(Table A) 1,143 575

2012-2013

Rupees in Billion

2011-2012 2012-2013

FEDERAL BUDGET

2011-2012 [PROJECTED 2012-2013]

As per Shadow Government

Budget Budget Expected /

Document % Puroposed % Proposed %

Tax Revenues

Direct Taxes

Income Taxes 744 35% 1,255 46% 890 35%

Indirect Taxes

Custom Duty 206 325 250

Sales Tax 837 970 960

Federal Excise Duty 165 200 200

Petroleum levy & others 122 - 150

1,330 65% 1,495 54% 1,560 65%

2,074 100% 2,750 100% 2,450 100%

Non Tax Revenue

Income from property

& enterprise 195 300 200

Receipts from Civil

administration & others

- SBP Profit 200 180 200

- Others [Note 4.3] 262 300 250

657 780 650

TOTAL REVENUE CURRENT

ACCOUNT 2,731 3,530 3,100

2012-2013REVENUE RECEIPTS [NOTE 1] 2011-2012

Rupees in Billion

[Note 2]

[Note 3]

[Note 4]

NOTE 2

FEDERAL BUDGET Rupees in Billion

2011-2012 [PROJECTED 2012-2013]

RECONCILIATION OF 2011-2012 WITH PROJECTED

BUDGETED COLLECTION (NOTE 2.1) 744

Normal Increase due to inflation and expected growth

(Inflation 12%; Expected Growth 3%) 111

855

ADDITIONAL / UNEXPLORED SOURCES

- Agriculture income tax [collected through Federal mechanism] 100

- Tax on Agricultural Trading (Arthis) 50

- Improvement in Tax Collection due to correction in Afghan

Transit Trade, Under invoicing of other and smuggling 50

-

200

400

TOTAL 1,255

Improvement in monitoring, broadening the tax base and elimination of

tax evasion due to corruption

NOTE 2.1

FEDERAL BUDGET

2011-2012 [PROJECTED 2012-2013]

RECONCILIATION OF 2011-2012 WITH PROJECTED

Composition of collection of Income Tax (Estimated) Rupees in Billion

2011-2012 2012-2013

● Taxes from corporate sector 350 543● Taxes at import stage 150 233● Salaried class 60 93● Agriculture - 100● 184 286

744 1255Other sources

NOTE 3

FEDERAL BUDGET

2011-2012 [PROJECTED 2012-2013]

RECONCILIATION OF 2011-2012 WITH PROJECTED

CUSTOMS DUTY

� Abolition of SRO culture, Duty exemptions and abuse of SRO to be curtailed. [In the countryinspite of higher rates of duty, the effective rate of duty is 5 per cent].

� Duty slabs be rationalized with minimum of 5 percent and maximum of 10 to 15 percent[maintaining cascading principle]. Any exception to be approved by the parliament.

� Reconciliation of actual and proposed is as under: Rupees in Billion

Actual 206

Increase @ 15% [Rs 206 + 15 percent] 29

235

Correction in Afghan Transit Trade 30

Correction is under invoicing 30

Curtailment of abuse of DTRE 20

Correction of abuse of zero-rating and SRO culture 10

90

325

NOTE 4

FEDERAL BUDGET SALES TAX BUDGET

2011-2012 [PROJECTED 2012-2013] 2012-2013 FORECAST

REDUCTION OF SALES TAX RATE TO 12 PERCENT

Rupees in Billion

1 Sales Tax

2 Present Rate 16%

3 Collection 2011-2012 (Note 4.1) Rs 837 billion

4 Expected Collection 2012-2013 (Government) Rs 837 billion

2012-2013 Rs 837 x 15% Rs 960 billion

5 Proposal

- Reduce Sales Tax Rate from 16 to 12 percent

- Improve Collection System

Projected calculation 837 x 12 / 16 = 625

Add: 15 per cent growth 100

725

Increase in Sales Tax collection on account

of checks on Afghan Transit Trade, under

invoicing, DTRE 60

Curtailment of abuse of input tax on account

of lowering the rate 50

Sales Tax:

(i) on services 45

(ii) retail and wholesale trade 20

70970

All essential commodities subject to sales tax; direct burden on common man;

Improvement in monitoring, broadening the tax

base and elimination of evasion of tax due to

corruption

FEDERAL BUDGET

2011-2012 [PROJECTED 2012-2013]

RECONCILIATION OF 2011-2012 WITH PROJECTED

NOTE 4.1 Rupees in Billion

Composition of sales tax

2011-2012 2012-2013

Collection at import stage 387 448Net collection at domestic stage (Note 4.2) 450 522

837 970

NOTE 4.2

Net collection at domestic stage is calculated as under:

Local output tax (Domestic) 1,800 2088Less: Input adjustment for taxed collected at import stage (387-17) (370) (429)

Local input adjustment (980) (1,137) 450 522

SHADOW FEDERAL BUDGETNON TAX REVENUENOTE 4.3OTHERS

Rupees in Billion

Receipts from Civil Administration & Other Functions:

Defence 118

Gas Development Surcharge 25

Discount on Local Crude Oil 25

Royalty on Oil 15

Royalty on Gas 33

Passport & Citizenship Fee 14

Others 32

262

NOTE 5FEDERAL BUDGET2011-2012 [PROJECTED 2012-2013]

EXPENDITURE

As per Shadow Government

Budget Budget Expected /

Document % Proposed % Proposed %

CURRENT EXPENDITURE ON REVENUE ACCOUNT

(1) Debt Servicing

- Local 715 750

- Foreign:● Interest 76 ● Repayment of debt 243 250

1,034 36% 1,000 36%

(2) Defence Expenditure 495 17% 450 16%

(3) Subsidies / Transfers / Grants [note 5.1] 461 16% 500 18%

(4) Federal Government Expenses

- Public Order & Safety: ● Police 55 55 ● Others 5 5

- Pension 96 100

- Education Affairs &Services 39 25

- Economic Affairs 50 25

- General Public Service & Others 80 25

325 11% 235 9%

2,315 2,185

CURRENT EXPENDITURE ON CAPITAL ACCOUNT [Note 5.2] 69 2% 70 3%

2,384 2,255

DEVELOPMENT EXPENDITURE [Note 5.3] 451 16% 500 18%

2,835 100% 2,755 100%

2012-20132012-2013

Rupees in Billion

2011-2012

SHADOW FEDERAL BUDGETNOTE 5.1SUBSIDIES AND GRANTS

Rupees in billion

Present 2011-2012 Proposed 2012-2013

1) Subsidies:

WAPDA 122 Subsidy:KESC 25

TCP 4 Energy subsidy 250USC 2 Food and fertilizer support 150

PASSCO 1 400Oil Refinery & OMC's 8

Wheat Stock 4 Grants:166

AJK 20

2) Grants Gilgit Baltistan 10Baluchistan 20

Special Grants Railway 25Others 25 100

Punjab 5Sindh 8

KPK 25Baluchistan 17 55

Railways 25

Other Grants AJK 15 Gilgit Baltistan 8

Bait ul Mal 2

105

3) Others

Miscellaneous 30Contingent Liabilities 150

Others 10 190

461 500

SHADOW FEDERAL BUDGETDEVELOPMENT EXPENDITURE(PSDP & NON PSDP)NOTE 5.2

Rupees in billion

2011-2012 2012-2013

PSDP

Various Federal Ministries or organisations 157 100

(This includes Rs 36 million for Ministry of Water & Power) (Table C)

WAPDA 32 -

National Highway Authority (NHA) 40 40

Peoples Work Program 1 5

Peoples Work Program 2 28 33 25

Special Areas

AJK 11

Gilgit Baltistan 7

FATA 10 28 25

ERRA 10 10

300 200

Outside PSDP

Grants for Afghanistan 2 -

Subsidy for Urea Fertilizer 12 -

Benazir Tractor Support Program 5 -

Benazir Income Support Program [BISP] 50 30

Benazir Income Generation Program - 20

Rehabilitation of IDP 5 -

Export Fund 10 -

Others 14

98 50

Others 53

- 250

451 500

Funds to be utilized for other productive PSDP being essentially for

energy, water and infrastructure development projects

NOTE 6

SHADOW FEDERAL BUDGET

RECONCILIATION OF NATIONAL DEBT AND DEBT SERVICING

Rupees in Billion

- Foreign Debt approximate -. US 60 billion @ 90 5,500

- Local debt - bank and non-bank debt (Estimated) 5,500 11,000

Cost of Servicing:

- Foreign debt : Average rate 3% - 60 US$ @ 3% x 90 162

- Local debt servicing 5500 x 11% (Average) 605 767 say 750

There is an expected increase in local debt of Rs 500 - 600 billion; therefore by June 30,

2012, local debt may be around Rs 11,500 billion.

NOTE 6.1

SHADOW FEDERAL BUDGET

Trade Balance of Pakistan

- Total Expected Exports US$ 25.0

- Total Expected Remittance 11.0

36.0

Expected Imports (40.0)

Net balance of payment (deficit) (4.0) billion

Calculation of Under Invoicing

Total Imports US$ 40 billion

Estimated under invoiced imports US$ 4 billion

Afghan Transit Trade US$ 2 billion

Duty and Taxes Evaded

Custom duty 10 %

Sales Tax 16 %

Income tax withholding 5 %31 % US$ 4x31%x90= Rs 112 billion

US$ 2x31%x90= 56 billion168 billion

Table A

Table B

Table C2010-11 2011-12

PSDP for Various Ministries

1 Water & Power Division 17,173 36,136

2 Pak. Atomic Energy Commission 10,738 22,000

3 Finance Division 7,874 10,371

4 Railways Division 7,072 15,000 5 Planning & Development Division 5,145 31,975

6 Higher Education Commission 15,040 14,000

7 Industries & Production Division 1,549 2,138

8 Interior Division 2,997 5,800

9 Defence Division 2,051 3,846

10 Housing & Works Division 1,528 1,396 11 Cabinet Division 1,778 2,692

12 Science & Tech. Research Division 630 1,147

13 Law and Justice Division 366 1,200

14 Revenue Davison (FBR) 802 1,970

15 Petroleum & Natural Resources Division 421 150

16 IT & Telecom Division 310 793 17 Defence Production Division 451 1,455

18 Commerce Division 200 425

19 Communication Division excl. NHA 70 172

20 Ports & Shipping Division 519 744

21 Pak. Nuclear Regulatory Authority 91 350

22 Ministry of Foreign Affairs 52 285 23 Marcotics Control Division 379 534

24 Establishment Division 78 34

25 Information & Broadcasting Division 260 630

26 Textile Industry Division 60 150

27 Statistics Division 98 252

28 Economic Affairs Division 9 160 29 Capital Admn & Development Div. - 677

30 Inter Provincial Coordination Div. - 70

31 Ministry of Postal Services 30 -

32 Health Division 10,125 -

33 Food & Agriculture Division 5,575 - 34 Education Division 2,689 -

35 Population Welfare Division 1,855 -

36 Livestock & Dairy Dev. Division 362 -

37 Environment Division 514 -

38 Special Initiatives Division 128 -

39 Women Development Division 73 - 40 Social Welfare & Special Edu. Div. 54 -

41 Labour & Manpower Division 39 -

42 Local Govt. & Rura Dev. Division 30 -

43 Tourism Division 55 -

44 Culture Division 135 -

45 Sports Division 105 - 46 Youth Affairs Division 38 -

99,548 156,552

Rupees in Million

-------- And before you leave the market place, see that no one has gone his way with empty hands. For the master spirit of the earth shall not sleep peacefully upon the wind till the needs of the least of you are satisfied.

Buying and Selling

To you the earth yields herfruit, and you shall not want if you but know how to fillyour hands. It is in exchanging the gifts of the earth thatyou shall find abundance and be satisfied. Yet unless theexchange be in love and kindly justice, it will but leadsome to greed and others to hunger --

By Kahlil Gibran