FISCAL POLICY OF PAKISTAN 2013

INTRODUCTION:

Fiscal policy is an important part of overall economic Framework of country.

The Fiscal policy is formed by Central Govn (Federal Govn)----Ministry of Finance.

DEFINITION:

• What is a Fiscal Policy? According to Samuelson Fiscal Policy is concerned with all those arrangements which are adopted by the Government to collect the revenue and make the expenditures so that economic stability could be attained/maintained without inflation and deflation.

Fiscal policy means the use of taxation, Public expenditure by the Government for purposes to “Stabilization” and “Development”.

“ACCORDING TO ARTHUR SMITH” Fiscal policy to refers the policy under which government

uses its expenditure and revenue program to produce the desirable effect of national income , production and employment.

COLLECTION OF REVENUE:

Taxes

Direct tax

Indirect Tax

Fees

Aids

Fines

Loan

OBJECTIVES OF FISCAL POLICY: Development of country

Expansion of Employment

Fixation of Govt Policy

Economic Growth

Controlling Inflation

Check imbalance the various sectors

Reduce inequality the income and wealth

Increasing the Investment

Optimum allocation of Resources

INSTRUMENT OR TOOLS OF FISCAL POLICY: Implementing the Fiscal policy of the Nation

Govt revenue

Expenditure

Budget

The Budget of the Govn is main instrument of the Fiscal Policy.

BUDGET:

The Estimated Revenue and Expenditure of he next year and the Future year of the Govt with specific time.

Fiscal policy involves the Revenue and Expenditure pattern to achieve the range of Economics Objectives.

METHODES OF RAISING FUNDS

Governments expenditure can be funded in a number of different ways:

Taxation of the population

Non Tax

Borrowing money from the population,resulting in a fiscal deficit.

External resources: Foreign grant and loans etc

TYPES OF TAXES

1) Direct:

Direct tax is the one paid directly to the Govt. By the persons on whom it is imposed

Income Tax, Property Tax, Capital Value Tax etc

2) Indirect:

It is collected by an intermediary(such as a retail store) from the person who bears the ultimate economic burden of the tax(such as the customer).

Sales Tax

REVENUES FROM TAX AND NON-TAX 2012 AND 2013

2012 2013

731.9 735.8

1320.91463.5

513.6

783.2

Comparison of Taxes in 2012 and 2013

Direct Tax Indirect Tax Non-Tax

Growth rate increased by 16.2% in 2013

Major part of this increase came from the rise in the non-tax revenues.

TOTAL REVENUE STRUCTURE IN 2013

COMMON ISSUE REGARDING COLLECTION OF TAXES Tax Evasion

It is an illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability.

CAUSES OF TAX EVASION

People do not want to disclose their true income

Too many unlawful business activities such as drugs, hoarding, black money, etc.

No fear of punishment

Complex tax structure

Uncontrolled inflation and high cost of living

Low level of literacy among tax payers

Some economic sectors are exempted: Agriculture,real estate and capital gain

WEAKNESS OF TAX SYTEM

The principal reason lies in the structural weaknesses of Pakistan’s tax system which is:

Complex

Inefficient

Unfair

PRINCIPLES OF TAX POLICY

Lowering tax rates

Taxing all value additions including services,not just manufacturing sector

Establish an effective and efficient tax system.

Overcome the culture of tax avoidance and evasion

TYPES OF FISCAL POLICY

Expansionary: 

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of two for the purpose of increasing aggregate demand and expanding real output.

Aggregate demand= consumption+investment+Govt spending+net Exports

Contractionary: 

A decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two for the purpose of decreasing aggregate demand and thus controlling inflation.

FISCAL DEFICITFiscal deficit is the difference between the government’s expenditures and its revenues (excluding the money it’s borrowed). A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

Fiscal Deficit=Govt. Spending –Govt. Earning

Causes of Fiscal Deficit

High Govt. Spending

Lower Revenue

Inflation

ECONOMIST’S OPINIONS

Economist John Maynard Keynes believed that deficits help countries climb out of economic recession.

On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

FISCAL DEFICIT DIAGRAM(2009-2013)

FY09 FY10 FY11 FY12 FY130123456789

7.2

8.58

Fiscal Deficit

Budgeted Actual

BUDGETED AND ACTUAL ESTIMATES FOR 2013

EXPENDITURE COMPARISON 2012-13

FACTORS OF DEVIATION IN FISCAL DEFICIT The deviation from initial estimates was largely on account of three factors:

underestimation of subsidies

underestimation of interest payments

overestimation of FBR tax revenue.

WHY PAKISTAN IS FACING BUDGET SHORTFALL Increase in non-development expenditure

32%

68%

Interest & Defense Total Expanditure

32% Of the total expenditure is spend

on the Defense &

Interest Payments.

2011 2012 20130

100

200

300

400

500

600

700

800

900

1000

Defence Interest

Rs. In Billions

Increase in non-development expenditure

WHY PAKISTAN IS FACING BUDGET SHORTFALL(CONT.) Too many factories are closed or in partial production for

want of power and gas

Tax Evasion by well performing industries

Corruption by Tax Officials

Law and Order causing burden on the Expenditure side by way of compensation to the affected and mobilization to send forces to such areas.

HOW PAKISTAN CAN AVOID SURGE IN FISCAL DEFICIT? FBR should impose new taxes

Increase the price of utilities

Decrease in development spending

CONCLUSION

Pakistan fiscal position worsened because of unexpected events occurred on domestic and external scene.

High proportion of revenues being spent on defense and interest payments.

Lower industrial productivity leads to lower tax collection because of high interest rates.

Pakistan needs to increase tax base by imposing tax on agriculture and capital gain to increase revenue.