Presented To:

Dr. Shahida Wizarat

Presented By:

Nasir R. Zaidi (MBA-R)

Introduction

Fiscal Policy

Fiscal Deficit - Definition

The shortfall of funds that takes place when a government's total expenditure exceeds the total revenue that it generates in a given year (excluding
money from borrowings).

Sources of Revenue

Expenditure

Fiscal Deficit

In practice, Fiscal Deficit refers to the phenomenon when a government faces an imbalance between its income and expenditure. It results in creating budget deficit thereby, affecting whole economy of a country counter-productively.

Overcoming Fiscal Deficit

Conclusion

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

Introduction

Fiscal Policy

Fiscal Policies
Expansionary Fiscal Policy

Sources of Revenue

Expenditure

Fiscal Deficit

An increase in government expenditures or a decrease in taxes that causes the government's budget deficit to increase or its budget surplus to decrease.

Overcoming Fiscal Deficit

Contractionary Fiscal Policy A decrease in government expenditures or an increase in taxes that causes the government's budget deficit to decrease or its budget surplus to increase.

Conclusion

Recommendat ions

Introduction

Fiscal Policy

Fiscal Policy - Schools of Thought

Classical View

Sources of Revenue

Expenditure

Fiscal Deficit

This view says that expansionary or contractionary fiscal policies are unnecessary as there are market mechanisms working altogether. Followers of this view believe that the government should run a balanced budget every year.
Keynesian View

Overcoming Fiscal Deficit

Conclusion

Recommendat ions

This view says that expansionary and contractionary fiscal policies can be used to positively influence macroeconomic performance. Increased spending and decrease in tax rates would stimulate aggregate demand.

Introduction

Fiscal Policy

Sources of Revenue

Sources of Revenue

Expenditure

Revenues

Fiscal Deficit
Tax Revenue Non-Tax Revenue

Overcoming Fiscal Deficit

Conclusion

Direct Taxes

Indirect taxes

Dividends

Royalty on oil and gas

Profit generated by state owned organizations

Recommendat ions

Introduction

Fiscal Policy

Direct Tax If impact and incidence of tax is on the same person, it is called a direct tax, "pay as you earn Example: Income tax

Sources of Revenue

Expenditure

Fiscal Deficit

Indirect Tax
If impact and incidence of tax is on two different persons, it is called an indirect tax. The burden of an indirect tax can be passed on by supplier to the final consumer Example: Sales Tax

Overcoming Fiscal Deficit

Conclusion

Recommendat ions

Introduction

Fiscal Policy

Dividends The government earns by investing in companies listed in Stock Exchanges. Royalty On Oil & Gas

Sources of Revenue

Expenditure

Fiscal Deficit

Overcoming Fiscal Deficit

The government increases its income by getting royalties from parties involved in exploration of natural resources.
Profit Generated From Stated Owned Organizations

Conclusion

Recommendat ions

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

How Revenue Is Generated?

Federal & Provincial Level

Tax Revenue

FEDERAL

PROVINCIAL

Direct Taxes

Indirect Taxes

Direct Taxes

Indirect Taxes

Income Tax

Corporation Tax

Sales Tax

Import / Export Duty

Capital Gains Tax

TaxProfessionals

Stamp Duty

Motor Vehicle tax

Introduction

Fiscal Policy

Governments Expenditure

Sources of Revenue

Expenditure

Expenditures
Fiscal Deficit

Overcoming Fiscal Deficit

Current Expenditures

Development Expenditure

Conclusion

Recommendat ions

Interest Payments
Debt Servicing

Administrative expenditure
Ministries, Advisors, Cabinets

Defence Expenditure
Military Expenses

Subsidies
Energy Issues

Undertaxed Sectors

Rampant Corruption

No Agricultural Tax Tax Avoidance

Narrow Tax Base

Poor Governance

FISCAL DEFICIT

Inconsistent Policies

Introduction

Fiscal Deficit

Fiscal Policy

Sources of Revenue

Expenditure

Fiscal Deficit

Overcoming Fiscal Deficit

Conclusion

The target for FY12 budget deficit has been revised to 4.7 percent however, 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.

Recommendat ions

Introduction

Fiscal Deficit

Fiscal Policy

Sources of Revenue

Expenditure

Fiscal Deficit

Overcoming Fiscal Deficit

Conclusion
- Growth of 14.7% in Total Revenue - Increase in Expenditures by 12.7% - Overall Fiscal Deficit stands at 2.5% of GDP

Recommendat ions

Introduction

Fiscal Deficit

Fiscal Policy

Sources of Revenue

Expenditure

Fiscal Deficit

Overcoming 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

Conclusion

Recommendat ions

Introduction

Fiscal Policy

Sources of Revenue

Expenditure

Fiscal Deficit

Overcoming Fiscal Deficit Compared to previous year, the overall surplus of provincial governments during 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 7th 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 as revenues account for this poor performance.

Conclusion

Recommendat ions

Introduction

Fiscal Policy

How To Overcome Fiscal Deficit

Sources of Revenue

Expenditure

Fiscal Deficit

Fiscal Imbalance

Overcoming Fiscal Deficit

Conclusion

Reduce Expenditures

Increase Revenue

Recommendat ions

Introduction

Fiscal Policy

Reduce Expenditures - Reduction In Interest Burden Repay Loans First

Sources of Revenue

Expenditure

- 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

Fiscal Deficit

Overcoming Fiscal Deficit

Conclusion

Recommendat ions

Enlargement of TAX 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

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 of 4 % per cent. - Containing fiscal deficit to 4.7 per cent in this fiscal year looks like an extremely difficult 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.

Fiscal Policy

Sources of Revenue

Expenditure

Fiscal Deficit

Overcoming Fiscal Deficit

Conclusion

Recommendat ions

Introduction

Recommendations

Fiscal Policy

Sources of Revenue

a. Broadening Tax Base (agriculture, educational institutions etc) b. Increasing the Elasticity of Tax System c. Mandatory Documentation of all Sectors

Expenditure

Fiscal Deficit

Overcoming Fiscal Deficit

d. Reconciliation of Bank Accounts with NTN with active participation of commercial banks
e. Improving Tax Collection & Investment Environment
i. Confidence Building Measures (CBMs) ii. Rebates and Tax Credit iii. Outsourcing of audit function iv. Revising Import Duty Structure v. Reviewing Indirect Tax rates

Conclusion

Recommendat ions