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Pakistan
FINANCE
Budget
The federal budget has two main parts: the ordinary budget, which
covers current expenditures, and the development budget (Public-Sector
Development Programme), which covers capital investment and development
programs (see table 4, Appendix). Current expenditures accounted
for 78 percent of planned spending in the FY 1994 budget. Defense
accounted for 26 percent of all expenditures, and debt service
took up another 36 percent. About 25 percent of federal income
was earmarked to be transferred to the provinces as statutory
and discretionary grants. The provinces have their own budgets
and limited powers to impose taxes. In 1991 the National Finance
Commission, which includes the prime minister and the four provincial
chief ministers, agreed to raise the proportion of funds going
to the provinces. In return, the federal government is no longer
responsible for financing provincial budget deficits.
Tax collections historically have constituted a smaller proportion
of GDP than that of many other countries--between FY 1984 and
FY 1992, they averaged 13.8 percent. The 1993 budget estimates
called for an increase to 15.1 percent, up from 13.9 percent in
FY 1992. Income and corporation taxes provided 12.9 percent of
tax revenues in FY 1993. Tax evasion, however, is thought to be
widespread. The agricultural sector was exempt from income tax
until 1993, when a temporary levy on large landowners was introduced
by the Qureshi government. In early 1994, it appeared unlikely
that this tax would be reimposed by the new government led by
Benazir, herself a large landowner in Sindh.
Indirect taxes are the main source of revenue. They provided
84 percent of tax revenues in FY 1991 and an estimated 83 percent
in FY 1992 and FY 1993. Customs duties were expected to account
for 35.0 percent of all government taxes in FY 1993. Excise duties
made up 17 percent of revenues, and sales taxes made up 10 percent.
Potential foreign aid donors consider the heavy reliance on indirect
taxes regressive and inflationary and an impediment to the general
policy of trade liberalization. Under pressure from the International
Monetary Fund (IMF--see Glossary), the government reduced import
duty rates in the FY 1992 and FY 1993 budgets.
In a three-year (FY 1992-94) policy statement made in agreement
with the World Bank and IMF in December 1991, the government committed
itself to important changes in the fiscal system. New measures
extended the narrow base of both direct and indirect taxes, and
administrative steps were taken to increase receipts of income
and wealth taxes as well as general sales and federal excise taxes
as a proportion of GDP. In FY 1993, however, the Nawaz Sharif
government failed to meet its fiscal targets, and relations with
the World Bank and IMF became strained. After the Qureshi caretaker
government came to power in July 1993, fiscal discipline was restored,
and in November 1993, the World Bank and IMF made substantial
aid commitments to the new government of Benazir Bhutto.
Data as of April 1994
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