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TAX NEWS - JUNE 2010

Pakistan Tax: More taxes, less relief

The federal government of Pakistan presented on Saturday the budget for the fiscal year 2010-11, with a total outlay of Rs 2.764 trillion, 12.3 percent higher than the Rs 2.462 trillion for 2009-10.

The new budgetary taxation measures would fuel inflation, ultimately leading to a rise in the common man's cost of living.

Borrowings of Rs 685 billion have been ascertained to meet budget deficit. The huge internal borrowings in particular would fuel inflation, and the new tax measures, including an increase in GST from 16 percent to 17 percent to burden consumers with Rs 30 billion, would also result in an increase in prices. An increase in GST will also impact consumers of CNG, cell phone users, steel prices, the sugar price and all commercial imports.

Prices of electronic appliances will go up due to the imposition of 10 percent FED, while five percent WHT on inland air travel would increase air travel cost. Advance tax of 0.3 percent on different banking instruments would increase the cost of transfer of money.

An increase in income tax on salaries over Rs 300,000 would also impact the salaried class in both the government and private sectors. An increase in FED on natural gas is set to increase monthly gas bills.

Salaries of government employees have been increased by 50 percent, which would only benefit 435,000 employees and a few hundred thousand pensioners. However, the private-sector employees would face a 20 percent hike in indirect taxes, estimated at Rs 1.121 trillion.

Finance Minister Dr Abdul Hafeez Shaikh presented the budget in the National Assembly. The overall size of the budget is projected at Rs 3.259 trillion, which is 10.7 percent higher than the 2009-10 outlay.

The minister told the House that total revenues are projected at Rs 2.574 trillion, which translates into a projected fiscal deficit of Rs 685 billion - four percent of the GDP. Gross federal revenues - tax and non-tax - are projected at Rs 2.411 trillion.

The FBR collection is projected at Rs 1.667 trillion - tax-to-GDP ratio of 9.8 percent. Under this budget, Rs 1.033 trillion will be transferred to the provinces under the seventh NFC Award, as compared to Rs 655 billion during the outgoing fiscal year. The total budget outlay is proposed at Rs 2.229 trillion - 13.1 percent of GDP. As an austerity measure, all budgeted non-salary current expenditure would be reduced to the same level as the outgoing year's, the minister said.

Dr Hafeez said recommendations of the Pay and Pension Commission would be implemented over the next three years. He announced an ad hoc monthly allowance equal to 50 percent of one month's basic pay for federal government employees, however, this benefit would not be available to the employees already receiving the allowance.

Medical allowance for BPS-1 to BPS-15 employees would be doubled, while it would be 15 percent of the basic monthly pay for BPS-16 to BPS-22 employees.

Pensioners who retired after 2001 would be given a 15 percent increase, while those who retired prior to 2001 would be given a 20 percent raise. The pensioners who retired in BPS-1 to BPS-15 would be allowed medical allowance of 25 percent of the pension drawn, while medical allowance to those who retired in BPS-16 to BPS-22 would be 20 percent of the pensions. Dr Hafeez said the minimum monthly pension is proposed to be raised to Rs 3,000.

Resource availability has been estimated at Rs 2.598 trillion, while net revenue receipts for 2010-11 have been estimated at Rs 1.377 trillion, indicating an increase of 1.9 percent from last year.

Provincial share in the federal revenue receipts is estimated at Rs 1.034 trillion, which is 57.9 percent higher than the 2009-10 budget.

Overall expenditures during 2010-11 have been estimated at Rs 2.764 trillion of which the current expenditure is Rs 1.998 trillion and development expenditure Rs 787 billion.

The share of current expenditures for 2010-11 is 72 percent, as compared to 78 percent in the revised estimates for 2009-10.
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