Big farmers still out of tax net By Shamim-ur-Rahman

ENRICHED by the increased revenue receipts from the Federal Divisible Pool under the 7th NFC Award and proposed sales tax on services, the Sindh budget 2010-11 has focused on infrastructure, connectivity, energy and further revenue generation. However, big farmers remain exempt from income tax.

The total budget size is estimated at Rs422 billion as against the revenue of Rs397 billion with a deficit of Rs25 billion.

For accelerating socio-economic activities, the provincial ADP has been raised by 53 per cent to Rs115 billion from the current year’s allocation of Rs75 billion. The total size of the development outlay adds to Rs135 billion that includes federal PSDP grants of Rs14.4 billion, foreign project assistance Rs4.2 billion and DERA/SCIP Rs1.5 billion.

The finalisation of the budget estimates took much time due to contentious issues pertaining to GST and the proposed VAT. According to budget documents, estimated revenue receipts from the divisible provincial pool are at Rs207.3 billion, showing 78.2 per cent increase over 2009-10 budget. This, however, includes the receipts on account of abolished Octri and Zila Tax. The estimates under oil and gas receipts are Rs51.2 billion against revised estimates of Rs53.7 billion.

The Provincial Own Receipts, have been projected at Rs50.5 billion, up 27 per cent over revised estimates of outgoing year. The collection of an estimated Rs25 billion from the sales tax on services is expected to start from October.

The provincial government claims it could collect Rs40 billion in this regard but has deliberately made conservative estimates. The federal finance ministry has advised the Sindh government not to levy sale tax on services for three months. The current revenue expenditure has been estimated at Rs268.3 billion, with an increase of 19.3 per cent over revised estimates of Rs224.8 billion.

The district development portfolio has been estimated at Rs18 billion. According to annual budget statements, Rs87.6 billion have been allocated for district governments which is substantially higher than Rs68 billion in the revised estimates for 2009-10. Karachi has got the lion’s share of Rs16 billion as against Rs13 billion shown in the revised estimates for the outgoing year.

The chief minister’s district Khairpur is number two with Rs5.8 billion while Hyderabad will get Rs5,3 billion. Similar allocations have also been made for taluka and town municipal administrations. But surprisingly, neither the chief minister referred to the local government elections nor has any allocation for the same been made in the provincial budget.

Now that Capital Value Tax (CVT) on immovable property has fallen in the provincial domain after the 18th Constitutional amendment, the Sindh government has projected a total receipts of Rs2.5 billion. The budget projects collection under different categories in the urban and rural areas. It has halved the incidence of this CVT and proposes to collect it at two instead of at four per cent that was being collected by the federal government. For the commercial immoveable property, it would be 2.5 per cent. As such the provincial government claims that its measures for both the categories would reduce the burden on the people by 37.5 per cent and 50 per cent respectively.

The government has also proposed to reduce rates of stamp duty on Conveyance Deed to two from the existing three per cent in order to expand the net and facilitate greater documentation. In this regard, the valuation table of immoveable properties would be increased in accordance with prevalent inflation.

The government has also proposed to reduce stamp duty in favour of Real Estate Investment Trusts. In this context it will be reduced to one from the existing three per cent on Conveyance Deed and from one to 0.5 per cent on registration. Stamp duty is also being reduced on some financial instruments ( participation term certificates, TFCs and other commercial papers) to harmonise the rates with those of Islamabad and Punjab.

But when it comes to revenue from tax on agriculture, the total receipts have been estimated at Rs220 million. The receipts from tax on motor vehicles have been estimated at Rs3.8 billion. The government also intends to generate revenue to the tune of Rs600 million from electricity duty under various heads throughout the province.

While terrorism and organised crime have proliferated despite increased allocations for the law enforcing agencies, the budget allocates Rs29.6 billon, which is 65 per cent more than Rs17.9 billon earmarked in 2007. The law and order remains one of the biggest challenge for the government because it has not yet succeeded in curbing targeted killings and sectarian violence which are politically motivated.

Claiming that it was pro-poor budget, the Sindh Chief Minister, Syed Qaim Ali Shah, referred to Benazir Women Support Programme and other poverty alleviation programmes, besides urban development projects .including revival of Karachi Circular Railways with Japanese government assistance.

He also referred to the innovative North Sindh Urban Services Corporation (NSUSC) which, he said, has already begun operations and will now take over the water supply, sewerage, solid waste management services of the seven cities in north Sindh in Phase I. This will be followed by another cluster in central Sindh covering cities like Nawabshah, Moro Shahdadpur, Hala, Sanghar and Dadu.

An allocation of Rs10 billion has been made for starting coal projects from provincial resources. The Sindh government is hoping to get matching contribution from the federal government. Development of energy related infrastructure, including construction of roads, railways, airport and transmission lines etc is high on the provincial government’s agenda to attract investment.

In order to meet the water shortages, the government also plans to build reservoirs on major canals. These will be filled during rainy season The current investment of the provincial government on irrigation and drainage is Rs4.8 billion which has been increased by 100 per cent to Rs10.5 billion. The budget as usual contained allocations on social sector such as health, education, etc.

Be that as it may, the development projects the chief minister mentioned in his speech were ongoing projects and there is hardly any new major initiative.

But analysts say, with rising of tariff of electricity and gas, and price of petroleum products, it would be naïve to expect that the government will meet all its projected targets. Frequently fluctuating cost of energy input will not only impact on the general public, industry and the business community, it would also upset the cost of different development projects due to enhanced cost of transportation. Rising cost of commuting will also result in price hike of everything.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/big-farmers-still-out-of-tax-net-460