Pakistan Economy

03-June-2016 | Perspective

Initial impressions FY17 Budget Speech

Finance Minister in his Budget speech for FY17 has set a GDP growth Medium term targets
target of 5.7% compared to 4.7% (provisional estimate) for FY16. The
FY19 FY16
government envisages further fiscal discipline with 3.8% (as a % of GDP)
GDP growth 7.0% 4.7%
fiscal deficit target compared to FY16 provisional estimate of 4.3%. 21.0% 15.2%
Investment as a % of GDP
The government has set a challenging medium term target for FY19 which Fiscal deficit as a % of GDP 3.5% 4.3%
includes: GDP growth of 7%, Fiscal deficit of 3.5%, Investment to GDP of Tax to GDP 14.0% 11.0%
21%, Tax to GDP of 14% and inflation to remain in single digit. Forex Reserves USD bn 30 21.6
Inflation (CPI) Si ngl e di gi t 0.029
With agriculture sector posting 0.2% negative growth in FY16,
government has kept a special focus on providing subsidies for the
farming community to support growth in this sector. It must be noted that
FY11-16 average agri growth has remained at a dismal 2.2% compared to
overall GDP growth of 4.0% witnessed during the same time frame.
The government has continued to give further incentives to export
GDP growth & its subsectors
oriented sector (textile) as they have also posted negative double digit
growth in FY16. In a bid to increase the investment in the economy (21% 7.5% Agriculture Industry
target compared to current 15%), tax credit on BMR and setting up on 6.5% Services GDP
plant via equity financing has been extended. 5.5%
Some of the key points for the stock market and the corporate sectors 4.5%
announced in the Budget speech are: 3.5%

Stock Exchange 2.5%

1.5%
 Dividend tax increased from 17.5% to 20% on tax non filer, no change for
0.5%
filer.
-0.5%
FY10

FY11

FY12

FY13

FY14

FY15

FY16p
 Mutual fund dividend tax of 10% for filers to remain the same, raised to 15%
for non-filers Source: Budget Speech, Eco. Survey, Alfalah Research
 Limit on CGT increased from 4 years holding to 5 year
 Corporate tax reduced by 1% to 31%
 Super tax extended this year as well
 Stock exchange listing benefit for companies extended from 1 year to 2
years.
 Withholding tax on brokers to be raised from 0.01% to 0.02%.
Agriculture Sector (Fertilizer)
 PKR36bn subsidy to reduce urea price to PKR1400/bag from current
PKR1750/bag
 PKR10bn subsidy to reduce DAP price to PKR2500/bag from current
PKR2800/bag
 PKR27bn subsidy to reduce electricity rate on tube well to 5.35/kwh from
8.85/kwh.
 7% sales tax applicable on pesticide sales to be abolished.
Exporters (Textile)
 Zero rate sales tax on five key Export oriented sectors Analyst
 Export Refinance Rate to be reduce to 3.0% from current 3.5% Alfalah Research
92 21 35645067
 All refunds to textile exporters to be made by 31 August 2016 whose refund taha@alfalahsec.com
payment orders have been accepted by 30th April 2016.

Research Entity
Notification Number:
REP-088
http://www.JamaPunji.pk
Perspective Pakistan Economy

 Duty free import of textile machinery to continue for textile sector.

 Incentive under technology upgradation fund has been extended to textile
sector as well.
Cement
 FED rate raised to PKR50/bag from current 5%.
 Federal PSDP raised by 21% to PKR800bn.
Insurance
 In a major development for the sector, 31% tax levied on all income sources
of insurance companies. We see this as a material negative for the sector.
 2/4% WHT on general insurance premium would be applicable on
filers/non-filers, whereas 0/1% WHT would be imposed on life insurance
premiums of filer/ non-filers.
 The minister has stated that insurance premiums worth PKR9.0bn would be
paid over 2015-18 under the Prime minister health insurance scheme, where
this development is positive it will have no impact on listed insurers in our view.
FMCG: Zero rating regime for packaged milk withdrawn and it is being placed in
tax exempt category which may result in price increase for packaged milk.
Tobacco: Cigarette tax rate increased by PKR0.23 to PKR0.55 per cigarette
depending on grade.
Tyres: Regulatory duty on bead wire used in tyre manufacturing eliminated.
Promoting new investment
 BMR tax credit exemption extended from FY16 to FY19.
 New plants 100% equity financing requirement for availing tax credit being
lowered to 70% equity financing with extension of benefit till FY19.
 Custom duty on machinery of Dairy, livestock & Poultry reduced from 5% to
2%.
 Custom duty eliminated on Cold storage machinery.
 Custom duty on raw material & machinery items of industrial units reduced
from 5% to 3%.
Banks
 FED on services provided by the sector that are already taxed to be removed
to avoid double taxation.
 Minister stated that deposit protection bill will be brought up in
the parliament to safe guard rights of the depositors.
Others
 CGT rate on property increased to 10%.
 Withholding tax on property increased on transactions above PKR3mn.
 Prize bond withholding tax raised to 20% from 15%.

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Perspective Pakistan Economy

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