Budget deficit to be restricted to 3.8pc of GDP

=ISLAMABAD: With the overall size to the tune of Rs4.42 trillion for the upcoming budget, the federal cabinet on Monday approved to restrict the budget deficit at 3.8 percent of the Gross Domestic Product (GDP) by further jacking up both the Federal Board of Revenue (FBR) and non-tax revenue targets slightly in 2016-17.

After the federal cabinet meeting, one minister told The News on condition of anonymity on Monday night that the budget deficit would be restricted to 3.8 percent of the GDP as the provinces the GDP as the provinces would ensure savings of 1 percent of the GDP so the federal fiscal deficit would be brought down from 4.3 percent in outgoing fiscal to 3.8 percent for upcoming budget. 

In the wake of envisaging the GDP growth rate target of 5.7 percent on insistence of the Planning Commission, the Finance Division adjusted all macroeconomic targets, including further jacking up the FBR’s tax collection target from Rs3,621 billion to Rs3,635 billion for next budget. The total size of the federal expenditures will be estimated over Rs4.42 trillion and the federal government will have to borrow Rs1,600 billion to meet development expenditure and running of civil government expenditures.

The current expenditure is going to consume Rs3.4 trillion. The federal cabinet approved Rs169 billion subsidies for the next fiscal year, which are at current year’s level. The defence spending has been envisaged at Rs860 billion. An amount of Rs348 billion has been proposed for running the civilian government - higher by only 6.8 percent. Another sum of Rs245 billion has been set aside for paying pensions to both military and civilians.

The cabinet approved that the tax rate on shares sold by non-filers within a year may be set at 18 percent against filer rate of 15 percent. The rate of CGT on shares sold after one year but within two years is approved to be fixed at 16 percent for non-filers as against 12.5 percent of filers. The tax rate is fixed at 11 percent for non-filers on the shares that they sell after two years but within four years of holding.

The federal cabinet approved charging a single income tax rate of 31 percent from the new financial year on all sources of income of insurance companies. The cabinet also approved to levy 1 percnt withholding tax on life insurance and 4 percent on general insurance. It also approved increasing tax rates of the commission agents of health and life insurance for non-filers of income tax returns.

The cabinet also approved to abolish the 5 percent custom duty slab. To compensate the negative impact of abolishing 5 percent slab on tax revenues, the cabinet approved to increase the 10 percent slab rate to 11 percent and 15 percent slab rate to 16 percent.

It also approved 3 percent WHT to be levied on cars being leased by banks and leasing companies. It has also proposed that there should be no limitation for taxing unexplained assets of non-filers and transactions up to year 2002 can be opened.

The sales tax rate on supply, repair and maintenance of ships, aircraft has been approved to be charged at the rate of 17 percent. The federal cabinet also approved relief measures as the government will announce relief package for agriculture sector and promoting investments.