An Analysis of Federal Budgetary Policy
Ali, Muhammad Imtiaz, Economic Review
Controversy is going on for decades on ideal budgetary policy in Pakistan. Various Taxation Commissions appointment by the then governments in Pakistan have been addressing themselves with this issue but failed to produce the desired results of ensuring economic growth by reducing the deficit financing, no new taxes, encouragement for industrial investment and personal savings, substantial lowering of tariff to boost up imports, and big increase in development outlay.
We have two types of budget in Pakistan viz (i) Revenue Budget and (ii) Annual Development Plan (ADP).
i) Revenue Budget: In revenue budget, an effort is made to match the current revenue against current expenditure and curtail the deficit. A good revenue budget leaves a surplus for Financing Development Plan but unfortunately we have very poor record of deficits which is almost constantly increasing since 1987-88 from 21 billion to 57 billion in 1994-95 which shows a negative contribution of the annual revenue budget to the financing aspects of ADP and failure on the part of the governments to mobilise enough resources through current revenue to meet current expenditure.
Revenue Budget Deficits
Billion Year Rupees
1987-88 21 1988-89 22 1989-90 27 1990-91 26 1991-92 32 1992-93 40 1993-94 63 1994-95 57
An analysis of the Revenue budget 1994-95 reveals that financial needs of the federal government was significantly met by indirect taxes as in the past several years.
Direct Taxes in 1994-95:
a) Income tax 54 b) Wealth Tax 2
Indirect Taxes 1994-95:
a) Custom Duties 78 b) Federal Excise 40 c) Sales Tax 4 0
The financing need of the Government may be classified as under:
1) Current Expenditures 1994-95:
a) Debt Services 136 b) Defense 102 c) Other Expenditure 57
ii) Development Expenditures:
a) Federal Government Development Projects.
b) Autonomous bodies under the Federal Government.
c) Allocation to provinces for their development projects.
d) Social action plan (SAP)
e) Special Development project.
Growth and Composition of Indirect Taxes
A study the indirect taxes over the last decade i.e. 1985-86 to 1994-95 reveals that there has been a growth from Rs. 50 billion to Rs. 158 billion. On a simple average, there has been an annual growth of 3.16% in the indirect taxes over the last ten years.
Indirect Taxes (1985-86 to 1994-95):
Rupees Year Billion
1985-86 50 1986-87 54 1987-88 65 1988-89 77 1989-90 90 1990-91 93 1991-92 114 1992-93 123 1993-94 147 1994-95 158
Federal Revenue Budget 1994-95:
Particular Rs. billion (%)
Indirect Tax 158 48 Nontax Revenue 92 27 Direct Taxes 56 17 Surcharges 26 8
Indirect Taxes as Component of the Federal Budget - 1994-95:
Custom Duties 78 50 Federal Excise 40 25 Sales Tax 40 25
Composition of Indirect taxes from 199091 shows the following trends:
Custom Duties: Custom duties also called tax on international trade show declining trend in 1990-91 this constituted 55% of total indirect taxes as result of successive governments' policy to reduce tariff in the current scenario of free trade environment. …