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Rich taxed in Punjab`s Rs654.67 billion budget 2011-2012

LAHORE: The Punjab Assembly announced a record Rs654.67 billion budget for the year 2011-12 to the strength of Rs100 billion in expected additional federal transfers compared to the previous year.
The provincial government has tried to shift the burden of taxes to the affluent class by bringing farmhouses and residences with swimming pools under the tax net besides increasing the tax rates on horseracing, fashion and musical shows, and levying 10 percent education cess on elite clubs.

However, the Punjab will still remain dependent on foreign projects assistance and grants to finance the Annual Development Programme (ADP). Punjab Finance Minister Kamran Michael presented the budget for the year 2011-12 in the provincial assembly. With the bulk of resources assured from the Rs530.806 billion Federal Divisible Pool, and straight transfers worth Rs6.15 billion, the Punjab government expects to collect provincial tax revenue of Rs88.517 billion. The non-tax revenue is fixed at Rs25.72 billion.

The current expenditure of Rs435.749 billion is Rs47.174 billion higher than the revised current expenditure of Rs387.575 for the year 2010-11. The Punjab government has allocated Rs220 billion for the annual development expenditure, of which Rs182 billion is the core ADP and Rs32 billion is for other development expenditures like Daanish Schools, Tevta, population welfare, low income housing and loans for non-financial institutions like the Punjab Industrial Estates, etc.

The minister announced the same salary and pension increase formula for provincial government employees as was announced for federal employees. He also announced the allocation of Rs5.2 billion to cover the increase in the salaries of doctors.

The Finance Bill also proposed an increase in the token tax on vehicles in accordance with their engine capacity in the annual budget 2011-12. However, the government has proposed reduction in entertainment tax on cinemas and circus from 65 percent to 20 percent and General Sales Tax (GST) from 17 to 16 percent.

According to the finance bill tabled in the Punjab Assembly, the rate of the token tax for private vehicles was last revised in 2004. Therefore, it is proposed to rationalise the rate of token tax on vehicles with engine capacity higher than 1,000 cc. Moreover, education cess has also been proposed on elite clubs rendering services to affluent sections of the society for the purpose of providing education to poor and needy children.

In the bill, 200 percent tax has been proposed as admission ticket to horseraces and 65 percent tax on fashion and musical shows. Similarly, Rs60,000 per annum has been proposed as water conservancy charge on a house or any other building, except educational institutions, which have swimming pools with a minimum surface area of 250 square feet.

The farmhouse tax has been proposed in accordance with covered area, as Rs10 will be charged per square foot of the covered area per annum on a farmhouse with covered area between 5000 to 7000 square feet, Rs15 per square foot of the covered area per annum on a farmhouse with covered area between 7001 to 10,000 square feet, and Rs20 per square foot of the covered area per annum on a farmhouse with covered area of more than 10,000 square feet.

Similarly, 10 percent education cess has been proposed on the initial membership fee of an elite club and 10 percent as service charges rendered by a club.

“The revenue targets seem achievable provided the Federal Board of Revenue achieves its target and full federal transfers are received by the provinces,” said an expert. “The Punjab government expects to receive Rs26 billion less in the ongoing year because of a revised lower tax revenue target fixed by the FBR.”

The provincial revenue targets seem achievable as the Punjab government expects to collect tax revenue of Rs75.31 billion this fiscal while the target announced for 2011-12 is only Rs13 billion higher. The new taxation measures announced in the budget will generate the required revenues. Farmhouses and houses with swimming pools have been taxed while motor vehicle and entertainment taxes have been enhanced. The non-tax revenue target has, in fact, been lowered from the revised estimates of Rs31.15 billion in 2010-11.

The Punjab government intends to initiate 500MW power projects in 2010-11 in collaboration with the private sector. To overcome the Punjab-specific energy and power shortages, the Punjab government has allocated Rs9 billion for this sector in next year’s budget.

The finance minister announced a yellow cab scheme in this budget under which 20,000 cabs would be provided on easy terms. The details of the scheme have not been unveiled, but the last yellow cab scheme, introduced by Nawaz Sharif in his second tenure as the prime minister, had resulted in huge bank defaults.

The allocation for pro-poor schemes has been increased by Rs9 billion to Rs30 billion. Most of this amount will be utilised for subsidy on wheat/flour and for subsidies during the month of Ramazan.

On the austerity side, the chief minister has curtailed his expenses by 25 percent over the revised expenses incurred this year while the provincial ministers will continue to draw less salary than they did in 2010-11. To facilitate export of fruit and vegetables, Rs2 billion have been earmarked for building cold supply chains.

The Punjab government expects Rs18.610 billion in foreign project assistance in 2011-12 to finance its ADP. The government expected Rs12.597 billion foreign project assistance in 2010-11 in the original budget estimate, but revised estimates reveal that this assistance will be Rs5.46 billion.

Similarly, the government expects foreign grants worth Rs1.025 billion in 2011-12 while it received only Rs188.99 million in the current fiscal year against the original budget estimates of Rs677.5 million. The allocation for police force has been increased by almost Rs3 billion to Rs52 billion.

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