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WEEKLY NEWSLETTER
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Pakistan
Index
The federal budget has two main parts: the ordinary
budget,
which covers current expenditures, and the development
budget
(Public-Sector Development Programme), which covers
capital
investment and development programs (see
table 4,
Appendix).
Current expenditures accounted for 78 percent of planned
spending
in the FY 1994 budget. Defense accounted for 26 percent of
all
expenditures, and debt service took up another 36 percent.
About
25 percent of federal income was earmarked to be
transferred to
the provinces as statutory and discretionary grants. The
provinces have their own budgets and limited powers to
impose
taxes. In 1991 the National Finance Commission, which
includes
the prime minister and the four provincial chief
ministers,
agreed to raise the proportion of funds going to the
provinces.
In return, the federal government is no longer responsible
for
financing provincial budget deficits.
Tax collections historically have constituted a smaller
proportion of GDP than that of many other
countries--between FY
1984 and FY 1992, they averaged 13.8 percent. The 1993
budget
estimates called for an increase to 15.1 percent, up from
13.9
percent in FY 1992. Income and corporation taxes provided
12.9
percent of tax revenues in FY 1993. Tax evasion, however,
is
thought to be widespread. The agricultural sector was
exempt from
income tax until 1993, when a temporary levy on large
landowners
was introduced by the Qureshi government. In early 1994,
it
appeared unlikely that this tax would be reimposed by the
new
government led by Benazir, herself a large landowner in
Sindh.
Indirect taxes are the main source of revenue. They
provided
84 percent of tax revenues in FY 1991 and an estimated 83
percent
in FY 1992 and FY 1993. Customs duties were expected to
account
for 35.0 percent of all government taxes in FY 1993.
Excise
duties made up 17 percent of revenues, and sales taxes
made up 10
percent. Potential foreign aid donors consider the heavy
reliance
on indirect taxes regressive and inflationary and an
impediment
to the general policy of trade liberalization. Under
pressure
from the International Monetary Fund
(IMF--see Glossary),
the
government reduced import duty rates in the FY 1992 and FY
1993
budgets.
In a three-year (FY 1992-94) policy statement made in
agreement with the World Bank and IMF in December 1991,
the
government committed itself to important changes in the
fiscal
system. New measures extended the narrow base of both
direct and
indirect taxes, and administrative steps were taken to
increase
receipts of income and wealth taxes as well as general
sales and
federal excise taxes as a proportion of GDP. In FY 1993,
however,
the Nawaz Sharif government failed to meet its fiscal
targets,
and relations with the World Bank and IMF became strained.
After
the Qureshi caretaker government came to power in July
1993,
fiscal discipline was restored, and in November 1993, the
World
Bank and IMF made substantial aid commitments to the new
government of Benazir Bhutto.
Data as of April 1994
Budget
The federal budget has two main parts: the ordinary
budget,
which covers current expenditures, and the development
budget
(Public-Sector Development Programme), which covers
capital
investment and development programs (see
table 4,
Appendix).
Current expenditures accounted for 78 percent of planned
spending
in the FY 1994 budget. Defense accounted for 26 percent of
all
expenditures, and debt service took up another 36 percent.
About
25 percent of federal income was earmarked to be
transferred to
the provinces as statutory and discretionary grants. The
provinces have their own budgets and limited powers to
impose
taxes. In 1991 the National Finance Commission, which
includes
the prime minister and the four provincial chief
ministers,
agreed to raise the proportion of funds going to the
provinces.
In return, the federal government is no longer responsible
for
financing provincial budget deficits.
Tax collections historically have constituted a smaller
proportion of GDP than that of many other
countries--between FY
1984 and FY 1992, they averaged 13.8 percent. The 1993
budget
estimates called for an increase to 15.1 percent, up from
13.9
percent in FY 1992. Income and corporation taxes provided
12.9
percent of tax revenues in FY 1993. Tax evasion, however,
is
thought to be widespread. The agricultural sector was
exempt from
income tax until 1993, when a temporary levy on large
landowners
was introduced by the Qureshi government. In early 1994,
it
appeared unlikely that this tax would be reimposed by the
new
government led by Benazir, herself a large landowner in
Sindh.
Indirect taxes are the main source of revenue. They
provided
84 percent of tax revenues in FY 1991 and an estimated 83
percent
in FY 1992 and FY 1993. Customs duties were expected to
account
for 35.0 percent of all government taxes in FY 1993.
Excise
duties made up 17 percent of revenues, and sales taxes
made up 10
percent. Potential foreign aid donors consider the heavy
reliance
on indirect taxes regressive and inflationary and an
impediment
to the general policy of trade liberalization. Under
pressure
from the International Monetary Fund
(IMF--see Glossary),
the
government reduced import duty rates in the FY 1992 and FY
1993
budgets.
In a three-year (FY 1992-94) policy statement made in
agreement with the World Bank and IMF in December 1991,
the
government committed itself to important changes in the
fiscal
system. New measures extended the narrow base of both
direct and
indirect taxes, and administrative steps were taken to
increase
receipts of income and wealth taxes as well as general
sales and
federal excise taxes as a proportion of GDP. In FY 1993,
however,
the Nawaz Sharif government failed to meet its fiscal
targets,
and relations with the World Bank and IMF became strained.
After
the Qureshi caretaker government came to power in July
1993,
fiscal discipline was restored, and in November 1993, the
World
Bank and IMF made substantial aid commitments to the new
government of Benazir Bhutto.
Data as of April 1994
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