Budget Commentary Azal Ahsan

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The 2015-16 Federal Budget brings positive signs for the real estate sector of Pakistan along with the banking sector which plays a pivotal role in home financing. With help measures for developers and builders in assessments for individuals participating in real estate investment trusts (REITs), it has given a support to this multi-billion dollar industry. The development part makes a positive gradually expanding influence on 16 industries of Pakistan and the regulating authorities have taken certain measures to give motivation bundles to it. Firstly, the markup on housing acquired by people for construction or purchasing of a house can now be deducted up to 50 percent of the taxable income. Apart from this minimum tax rates have been completely suspended on builders for sale and construction of residential areas. The supply of bricks and crushed stone will also be exempted from sales tax for up to three years till 30th June 2018. The customs duty on the import of construction machinery has also been reduced to ten percent. Hence this year there are numerous signs for higher number of loans being taken up by individuals for house purchasing and construction by individuals.

As far as sales tax and federal excise duty is concerned a few proposals were made in the 2015-2016 budget. Rationalization of sales tax rate on export oriented sectors. The applicable rates on export oriented sectors are 2%, 3% and 5% which are far below the standard rate of sales tax @ 17%. Certain irresponsible tax payers are misusing this concessional tax regime. In order to curb the mal practices it is proposed to rationalize the rates to 3%, 3% and 5%.This strategy might reduce exports resulting in lack of foreign money entering the economy and hence reaching the banking sectors.

For banks to prosper in Pakistan increasing employment opportunities coupled with enhancing the manufacturing sector of the country can play an important role. Banks have recently been seen to be interested in co-operating with SME’S (Small and medium enterprises).With a specific end goal to urge the organizations to produce employment, it is recommended that if an organization, being a manufacturer, is registered during the next three years and utilizes more than 50 workers properly enlisted with Social Security and Employees Old Age Benefit Institution a employment tax credit equivalent to 1% of the income tax payable for each 50 representatives may be given to the organization, subject to a maximum of 10%.

Bolstering new enterprises such as Halal meat production chains may result in greater transactions for banks.It may also result in use of debit cards and credit cards as in the case of “Meat One” which offered various discount and promotions on the use of bank cards. The 2015-16 budget has allowed new investments in the Halal meat sector tax exemptions from income tax for four years from the time of set up.

Agricultural sector has been targeted by banks in recent years as it holds a potential market for a wide range of customers. A move away from subsistence farming to cash crop and mechanized farming may bring great benefits to the banks of Pakistan. In this year’s budget “to promote farm mechanization and enhance productivity it is proposed that non-adjustable sales tax at reduced rate of 7%, instead of existing rate of 17%, may be charged on the local supply and import of certain agricultural equipment/machinery used in Tillage and seed bed preparation, seeding or planting, irrigation, drainage and agro chemical application etc. At present Customs duty, Sales Tax and withholding tax on import of agricultural machinery in aggregate is 28% to 43%. It is proposed to reduce Customs Duty, Sales Tax and Withholding Income Tax cumulatively to 9%”.Overall the above policies if implemented can bring the bank large number of customers who may end up picking loans to enjoy the concessions provided to them by government upon investment in this sector.

Interest free loans will be provided for the for solar tube wells under this budget. To ensure a shift from the heavy expenditure caused by using electricity or diesel to run the tube wells the government is doing its utmost to switch people to solar run tube wells. “Against a deposit of Rs.100,000 the government will provide interest free loans through the commercial Banks. The interest on these loans will be picked up by the government. Under this scheme it is proposed to provide interest free loans for 30,000 tube wells in the next 3 years. All farmers with landholdings up to 12.5 Acres will be eligible to apply for this loan.”

Bibliography

- "Budget 2015/2016: Salient Features." PkRevenue.com. N.p., n.d. Web.

- "Highlights of Federal Budget 2015-16 Speech." Samaa.tv. N.p., n.d. Web.

- "Pakistan Federal Budget." N.p., n.d. Web.

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