(MENAFN- Gulf Times) Pakistan will increase its capital gains tax as it seeks to boost revenue and raise economic growth to the highest in nine years.
"Without collecting more taxes we can't hope to increase development spending that is crucial for economic growth," Finance Minister Ishaq Dar said in parliament in Islamabad on on Friday, presenting the budget for the fiscal year starting July 1. "Our government believes in taxation in a growth paradigm." Prime Minister Nawaz Sharif in his third budget aims to collect more taxes to meet goals under a $6.6bn International Monetary Fund programme. Higher revenues are crucial to contain the deficit and resolve crippling power shortages as the military's outsized influence on policy and a renewed offensive against terrorists keep him from cutting defence spending.
The government will increase the capital gains tax rate to 12.5% from 10% on investments sold in less than one year. The rate will rise to 10% from 7.5% between one and two years and a new rate of 7.5% will be introduced on holdings sold between two and four years.
"It is slightly negative for the market especially the new category," said Khurram Schehzad, director research and investment strategy at Karachi-based brokerage Arif Habib. "We can expect selling before July 1 when these measures become applicable." The government aims to raise 50bn rupees ($490mn) from privatisations in the new fiscal year, budget documents released after Dar's speech indicated.
It also will seek to raise about $1bn through the sale of a global bonds.
Gross domestic product is forecast to grow 5.5% in the fiscal year after an estimated 4.24% expansion in the current period, Dar said. The budget deficit is projected at 4.3% of GDP in the next fiscal year, narrower than an estimated 5% this year. "We are following a serious program of reforms," Dar said. "We are now embarking on the path of growth." The budget shortfall this year has been partly due to $4.5bn Sharif spent on fighting terrorism and militancy. That conflict has claimed more than 60,000 since 2001, according to the foreign ministry.
Tax revenues are budgeted to rise 19% to 3.1tn rupees after a 21% increase this year, according to, Shahid Hussain Asad, a Revenue Board spokesman, said May 29. Defence spending will increase 11% to 780bn rupees in the coming fiscal year. The nation will spend 1.5tn rupees on development projects, including 65% increase in roads and highway spending. A zero% duty on imports of textile industry machinery was extended.
China and Pakistan are planning $45bn in projects along a 3,000-kilometre (1,850 miles) corridor, which would boost Pakistan's economic growth and provide another route for China to import oil from the Middle East. The 43% plunge in crude costs over the past year has helped Pakistan lower its import bill and cut interest rates to the lowest since at least 1992.
The government forecasts are "highly optimistic given the prevailing structural weaknesses," Iqbal Dinani, an analyst at Karachi-based BMA Capital Management Ltd, wrote in a report Thursday. "The materialization of projects under the China- Pakistan Economic Corridor, improvements in the law-and-order situation and the direction of oil prices will remain key."
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