Fiscal Policy Nasir R. Zaidi

8/2/2019 Fiscal Policy Nasir R. Zaidi

1/19

Presented To:

Dr. Shahida Wizarat

Presented By:

Nasir R. Zaidi(MBA-R)


2/19

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions

Fiscal Deficit - Definition

The shortfall of funds that takes place when agovernment's total expenditure exceeds the totalrevenue that it generates in a given year (excludingmoney from borrowings).

In practice, Fiscal Deficit refers to the phenomenonwhen a government faces an imbalance betweenits income and expenditure.

It results in creating budget deficit thereby,affecting whole economy of a countrycounter-productively.

Source: http://www.investopedia.com/terms/fiscaldeficit


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Fiscal Policies

Expansionary Fiscal Policy

An increase in government expenditures or a decrease in taxes

that causes the government's budget deficit to increase or itsbudget surplus to decrease.

Contractionary Fiscal Policy

A decrease in government expenditures or an increase in taxesthat causes the government's budget deficit to decrease or itsbudget surplus to increase.

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


4/19

Fiscal Policy - Schools of Thought

Classical View

This view says that expansionary or contractionaryfiscal policies are unnecessary as there are marketmechanisms working altogether. Followers of this

view believe that the government should run abalanced budget every year.

Keynesian View

This view says that expansionary and contractionaryfiscal policies can be used to positively influencemacroeconomic performance. Increased spendingand decrease in tax rates would stimulate aggregatedemand.

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Revenues

Tax Revenue

Direct Taxes Indirect taxes

Non-TaxRevenue

DividendsRoyalty on oil

and gas

Profit generatedby state ownedorganizations

Sources of Revenue

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Direct Tax

If impact and incidence of tax is on the same person, it iscalled a direct tax, "pay as you earn

Example: Income tax

Indirect Tax

If impact and incidence of tax is on two differentpersons, it is called an indirect tax. The burden of anindirect tax can be passed on by supplier to the finalconsumer

Example: Sales Tax

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Dividends

The government earns by investing in companies listed inStock Exchanges.

Royalty On Oil & Gas

The government increases its income by getting royaltiesfrom parties involved in exploration of natural resources.

Profit Generated From Stated Owned Organizations

All earnings that come from companies owned by state.Example: P.S.O

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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TaxRevenue

FEDERAL

DirectTaxes

IncomeTax

CorporationTax

IndirectTaxes

Sales TaxImport /

Export Duty

PROVINCIAL

DirectTaxes

CapitalGains

Tax

Tax-Professionals

IndirectTaxes

StampDuty

MotorVehicle

tax

How Revenue Is Generated?Federal & Provincial Level


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Governments Expenditure

Expenditures

CurrentExpenditures

InterestPayments

Administrativeexpenditure

DefenceExpenditure

Subsidies

DevelopmentExpenditure

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions

Debt Servicing Ministries, Advisors, Cabinets Military Expenses Energy Issues


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FISCALDEFICIT

PoorGovernance

Narrow TaxBase

UndertaxedSectors

RampantCorruption No

Agricultural

Tax

TaxAvoidance

InconsistentPolicies


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Fiscal Deficit

The target for FY12 budget deficit has been revised to 4.7 percenthowever, it will still be challenging to achieve

During FY11, the fiscal deficit rose to 6.6 percent against the target of

4.0 percent. This was due to higher subsidies including arrears of

electricity on expenditure side and less than target FBR revenue.

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


12/19

Fiscal Deficit

- Growth of14.7% in Total Revenue

- Increase in Expenditures by 12.7%

- Overall Fiscal Deficit stands at 2.5% of GDP

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

FiscalDeficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


13/19

Fiscal Deficit

- Direct Taxes Collection Up By Rs.15.9 bn

- Direct Taxes Collection Up By Rs.12 bn

- Total Tax Collection Up By Rs.13.4 bn

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Compared to previous year, the overall surplus of provincial governmentsduring FY12 amounting to Rs 20.6 billion does not portray a healthy picture.

Last year, the provincial surplus stood at Rs 100.0 billion after the provinces

started to receive a greater share of the federal revenue due to the 7 th NFC

award. The overall balance of first half means that only 16.5 percent has been

achieved so far. Factors related to both the expenditure side as well asrevenues account for this poor performance.

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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How To Overcome Fiscal Deficit

Fiscal

Imbalance

ReduceExpenditures

IncreaseRevenue

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Reduce Expenditures

- Reduction In Interest Burden Repay Loans First

- Reduction In Subsidies(electricity, gas, water)- Reduction In Overheads(underutilized human and material resources)

- Closure of Sick Units(Eg: PIA, Pakistan Steel Mill, Railways)

Increase Revenues

- Enlargement ofTAX BASE - not TAX RATE

- Privatize - wherever necessary

- Neat and clean taxation system - reduced red tapism

- Tax on agriculture (21% of GDP comes from agri-sources)

- Rewards /rebates for tax payers to increase confidence

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Conclusion

- The FY 2011 fiscal deficit stood at 6.6%. The target for FY 2012 has also been

revised upwards to 4.7 per cent from earlier estimate of4 % per cent.

- Containing fiscal deficit to 4.7 per cent in this fiscal year looks like an extremelydifficult task, especially as it is presumably election year.

- International oil prices are also rising which means energy subsidies will

increase - increasing governments expenditure and increasing fiscal deficit.

- Slow implementation of reforms as demanded by the International Monetary

Fund (IMF) is one of the main reasons for a high fiscal deficit.

- Pakistans investment rate was only 13.4% at end of last fiscal year, which was

the lowest since FY74. Low investment lead to higher fiscal deficit. The low

saving rate, coupled with dubious foreign investors led to record low investment

rate in the country.

- Government must focus on investing in energy solutions, enforcement of law and

order while lowering tariffs on smuggling prone items. Increasing the share of

direct taxes in revenue and lowering the slab of indirect taxes in the forthcoming

budget to achieve key economic targets set for the year 2012-13.

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


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Recommendations

a. Broadening Tax Base

(agriculture, educational institutions etc)

b. Increasing the Elasticity of Tax System

c. Mandatory Documentation of all Sectors

d. Reconciliation of Bank Accounts with NTN with active

participation of commercial banks

e. Improving Tax Collection & Investment Environmenti. Confidence Building Measures (CBMs)

ii. Rebates and Tax Credit

iii. Outsourcing of audit function

iv. Revising Import Duty Structure

v. Reviewing Indirect Tax rates

Introduction

Fiscal Policy

Sources of

Revenue

Expenditure

Fiscal Deficit

Overcoming

Fiscal Deficit

Conclusion

Recommendat

ions


19/19

Documents

Fiscal Policy Nasir R. Zaidi