1. Once again, as I have the honour of presenting the Budget 2015-16, I bow my head before Allah Almighty for untold and immeasurable blessings He has bestowed on this nation and the singular distinction He has conferred on Mohammad Nawaz Sharif, Prime Minister of Pakistan and his government in restoring the health of a broken economy.

The economic performance we have rendered in two years is unparalleled in the history of democratic governments. This has been made possible by the design of sound economic policies, first announced in Pakistan Muslim League (PML-N) Manifesto for Elections 2013 and then incorporated and implemented in the Budget 2013-14 and since then faithfully and steadfastly observed and followed by the Government.

Mr. Speaker

2. This august House is well aware that when we took office, the most vicious rumour taking rounds in the local and international financial circles was the imminent default that Pakistan was set to make in June 2014. This was a clever guess based as it was on the level of available reserves and the payments falling due until that date.

In the backdrop of completely dried-up foreign flows, as IFIs had declined to work with Pakistan, the reserves were destined only to travel south. However, we were determined to prove these economic pundits wrong and the country saw that not only we proved them utterly wrong but have steered the economy of Pakistan to safer shores.

3. In June 2013 we had a clear road-map of three objectives:

(a)   Preventing Pakistan from default in 2014;

(b)   Achieving macroeconomic stability by June 2015; and,

(c)   Promoting inclusive economic growth for creation of job opportunities and providing resources to alleviate poverty from third year onward.

4. We formulated policies and programs to achieve these objectives and we never hesitated in taking difficult decisions, no matter how unpopular, so long as they were critical for the revival of the economy. Accordingly, the economy of Pakistan has been stabilized and poised to grow at an accelerating rate.

Review of Economic Performance 2013-14

Mr. Speaker:

5. I would like to place before this august House the following key economic indicators, based largely on nine or 10 months data for the current fiscal year:

(a)   Economic Growth during 2014-15 has been provisionally recorded at 4.24% compared to the revised estimate of 4.03% last year, showing a rising growth trajectory. During 2008-13, the growth rate had averaged around 3% and hence this is the highest growth rate in seven years. The growth target for the year was 5.1%, which could not be achieved for the following reasons:

Massive floods in September 2014;

> Economic disruption during August-December 2014 due political agitation;

> The massive decline in international commodity prices, particularly oil affecting the output of these and associated sectors;

> The unusually long and cold winter weather had a negative impact on the Rabi crops, including wheat;

> The output of large-scale manufacturing has been affected due to shortages in gas and electricity, despite improvements in their supplies.

> Credit to private sector has grown at a slower pace as commercial banks continued to lend to the government.

(b) Per Capita Income, which stood at $1,384 last year has increased to $1,512, showing a growth of 9.3%;

(c) Inflation, which had averaged around 12% during 2008-13 before our government, was recorded at 4.6% for Jul-May 2014-15, which is lowest in 11 years;

(d) FBR Revenues, which had registered only 3% growth in 2012-13,were up by 16.4% during 2013-14 and have risen by another nearly 13%in the first 11 months of 2014-15 and are expected to close at 15%increase;

(e) Fiscal Deficit, in June 2013 was at 8.8%, which was brought down to 8.2% within weeks. In 2013-14, this was brought down  to 5.5% of GDP. In the current fiscal year we are on course to achieve the target of 5%;

(f) Credit to Private Sector, grew by 11% during 2013-14. It is projected to further grow at 7% during the year. The share of fixed investment in credit has significantly increased compared to last year.

(g) Policy Rate of SBP was 10% in November 2013, which has now been cut to 7% during the current fiscal year. This is the lowest policy rate in decades. The commercial lending rates are determined by the policy rate and have been declining in line with the policy rate. It will help spur investment, as the cost of capital will decline significantly;

(h) Exports were $20.18 billion during Jul-Apr 2014-15 compared to $20.83 billion last year, showing a decline of 3%%, largely due to negative price effect in the global commodity markets. Even though we have exported larger quantities but because of lower international prices, we have realized lower values;

(i) Imports were recorded at $34.65 billion during July-April 2013-14compared to $34.09 billion for same period in the current year, showing a marginal decline of 1.61%. More notably, imports of machinery have increased by an impressive 10.3% an indication of rising investment in the economy;

(j) Remittances, recorded at $12.89 billion during Jul-Apr2013-14, rose to $14.97 billion for the same period this year, showing an increase of 16.14%, which is remarkable and for which I once again salute my expatriate Pakistanis for playing such a critical role in country’s economy;

(k) Exchange Rate has shown remarkable stability in the last more than a year, except for a brief period during August-September due to political instability. Presently, the rate is hovering aroundRs102/$ in the inter-bank market.

For an economy like Pakistan, exchange rate has a pivotal position, as it impacts pervasively on all other variables.  Accordingly, a competitive and market determined stable exchange rate reduces uncertainty and boosts confidence of investors and consumers alike.

The exchange rate stability we have achieved has not been witnessed in recent years and is a source of rebuilding the credibility of our economy;

(l) Foreign exchange reserves were in a precarious state in June 2013. The State Bank reserves were at $6 billion, of which $2billion were due to swap that was payable in August and nearly $3.2 billion were falling due for repayments to IMF during the year, bulk of which in the first half.

On February 10, 2014, SBP’s reserves had further declined to $2.7 billion. Resultantly, the overall reserves, including those held by commercial banks, were $7.7 billion. It looked as if the notorious rumors were finally becoming reality. However, Alhamdulillah, we have strengthened the economy against fluctuations in external markets. Today country’s foreign exchange reserves have climbed to about $17 billion, of which the SBP reserves are around $12 billion, showing that all the increase in reserves has come in SBP reserves.

We are poised to take the reserves level to a historic high of nearly $19.0 billion during the year.

(m) Karachi Stock Exchange (KSE) Index stood at 19,916 on May 11, 2013, the day of the elections. It has now surged to around 34,000,showing an increase of 70%. Also, this increase is meant as an increase of about 40% in market capitalisation.

(n) Incorporation of new companies was recorded at 3,664 during Jul-Apr last year while during the period in 2014-15, this number has increased to 4,100, showing an increase of 11.9%;6.

In addition to the above, we have accomplished a number of other successes in different areas, some of which are noted below:

(a) International Sukuk: We entered the international Sukuk market, after 8 years, in November 2014, by issuing a five year Sukuk aiming to raise $500 million, but we received $2.3 billion, nearly five times the subscription and decided to take $1 billion. The proceeds of Euro Bonds and Sukuk have gone to retire an equivalent amount of domestic debt in the SBP and hence there is no increase in Public Debt due to this borrowing.

(b) Eligibility for IBRD: In the last budget I had informed this House about the resumption of policy lending from the World Bank and Asian Development Bank, which was suspended for lack of a stable macroeconomic framework before June 2013.

After achieving macroeconomic stability and the requisite increase in foreign reserves, in February 2015, Pakistan is declared eligible again for IBRD facilities.

7. The above review of economic indicators and policy initiatives fully demonstrates the fact that the country has achieved macroeconomic stability. It clearly shows an economy that is moving in the right direction. The expert assessments I will be citing shortly are reflective of the rising confidence of our development partners as well as investors. Pakistan is offering such investment opportunities, which few countries in the region can match. Accordingly, as we enter the third year we are confident that the year would bring even better economic results.

Mr. Speaker,

8. The picture painted above is not based exclusively on our own views. The international analysts and observers are all praise for our performance and potential for future growth. Some of these are worth bringing to the knowledge of this august House:

Japan External Trade Organization (JETRO) has declared Pakistan as likely to be second choicest place for FDI;

Goldman Sach’s Jim O’Neill has forecast that Pakistan would be world’s 18th largest economy by 2050 from its present 44th position;

Overseas Investors’ Chamber of Commerce and Industry (OICCI)has found that Business Confidence Index amongst its members, which stood at -34 has climbed to as high as +18;

Moody’s and Standard and Poor’s have both improved Pakistan’s outlook from negative to stable and recently from stable to positive;

Nielsen’s Global Survey of Consumer Confidence rose to 99 in the first quarter of 2014 from the lowest level of 86 in third quarter of 2011;

David Darst, Chief Investment Strategist, Morgan Stanley, has said `Pakistan is set to take-off, it is a matter of time’;

Bloomberg News says that despite challenges (a) corporate earnings in Pakistan are soaring and (b) stocks have surged.

The Economist London in its 2nd May 2015 issue has praised Pakistan’s economic recovery;

World Trade Organization (WTO) Trade Policy Review, April 2015 has praised economic performance of Pakistan;

Financial Action Task Force (FATF), the international body for monitoring anti-money laundering and terrorist financing had included Pakistan in its “Grey List” in 2012.

After Government’s actions including changes in laws, Pakistan has been included in the “White List” in February 2015.

Mr. Speaker,

8. This year, as a second phase of the plan of rationalisation of concessionary regime in-depth deliberations and wide-ranging consultations for minimising the remaining concessions have been conducted. Exemptions and concessions relating to customs, sales tax and income tax amounting to Rs120 billion are proposed to be withdrawn.

Mr. Speaker,

9. This process of withdrawal of discriminatory SROs will help to further rejuvenate economic activity especially by SMEs and reduce the cost of doing business in the country. The equity in taxes will breed competitiveness and provide a better and reliable environment for local and international investors.

Mr. Speaker,

I would also like to announce that the powers of the FBR to issue exemptions/concessions have been withdrawn and those of the Federal Government have been limited to exceptional circumstances. This reflects our belief in the supremacy of the Parliament.

Tax Reforms Commission

Mr. Speaker,

10. In my last budget speech, I announced formation of Tax Reforms Commission for analysing and reviewing the entire tax policy and tax administration. Subsequently, the Commission was formally established. It comprises eminent experts in taxation and law and leaders of the business community.

The Commission is doing a commendable job in identifying areas of tax structure and administration where policy intervention is required for improving the system.

The TRC has submitted its interim report and the final report shall be submitted by July this year.

Mr. Speaker,

11. By the grace of Almighty Allah the economy is out of turbulent waters. The challenge that we have accepted for the next three years of our current tenure is take the economy on a higher trajectory of growth. In order to do so it is important to have a special focus on those areas of economy that can be catalysts in economic growth.

Accordingly, we have decided to give special incentive packages to the Construction, Agriculture, Manufacturing and Employment Generation Sectors. These sectors can be engines of economic growth that can pull other sectors along for the following reasons:

These sectors form a significant part of national GDP

These sectors are labour-intensive and employ a large number of people

Agriculture has a short gestation period and its effect on the broader economy will be felt sooner.

Construction Industry has a ripple effect on sixteen other sectors of the economy.

Manufacturing leads to employment and thus has direct effect on the quality of life of a large number of people.

Mr. Speaker,

12. I will now give the details of the incentive package for Construction sector:

a. Housing Credit: Mark-up on housing loans obtained by individuals from banks and other institutional lenders for construction or buying a house is proposed to be allowed as a deduction against income up to 50% of taxable income or Rs1 million.

b. Suspension of Minimum Tax on Builders:

The minimum tax on builders leviable for the business of construction and sale of residential and other buildings is proposed to be exempted till June 30, 2018.

c. Real Estate Investment Trust (REIT) Development Schemes: We want to encourage the organised and corporatised sector to make investment in housing sector.

Accordingly, certain incentives are announced for REIT development schemes:

i. Capital Gains of any person who sells a property to a REIT development scheme formed for the development of housing sector is proposed to be exempt from Income Tax up to 30-6-2018.

ii. It is also proposed that if a development REIT Scheme for the development of housing sector is set up by 30-6-2018, for the first three years the rate of Income tax chargeable on dividend income of such REIT may be reduced by 50%.

d. Bricks and crushed stone: In order to reduce cost of construction, it is proposed that supply of bricks and crushed stone may be exempted from Sales Tax for three years up to 30-6-2018.

e. Reduction in customs duty on import of Construction Machinery: On import of dump trucks, super swinger truck conveyors, mobile canal lining equipment, transit miners, concrete placing trucks, truck mounted cranes and Crane Lorries in used condition by the Construction Companies registered with Pakistan Engineering Council and SECP, the customs duty is proposed to be reduced from 30% to20%.

Mr. Speaker,

13. The following incentives are proposed to be given to employment generating industries:-

a. Employment Credit to Manufacturers: In order to encourage the companies to generate employment, it is proposed that if a company, being a manufacturer, is set up during the next three years and employs more than 50 employees duly registered with Social Security and Employees Old Age Benefit Institution an employment tax credit equal to 1% of the income tax payable for every 50 employees may be provided to the company, subject to a maximum of 10%.

b. Exemption to Greenfield Projects: Under Prime Minister’s Package exemption was allowed from explaining source of investment for new investment in Greenfield industrial undertakings. On demand of various investors and business community, it is proposed that this exemption be extended up to June 30,2017.

c. Import of Solar Panels: Certain items are only exempted from sales tax and customs duty on import if they are not locally manufactured. However, import of solar panels and certain related components was exempt from this `local manufacturing’ condition until June 30, 2015. It is proposed that that exemption from sales tax and customs duty in this manner may be extended for one year to June 30, 2016.

d. Domestic Production of Solar and Wind Energy Equipment Manufacturing:  At present commercial imports in respect of items for dedicated use for renewable sources of energy such as solar and wind are exempt from withholding tax on import.

However, no exemption is available for the domestic manufacturers of solar and wind energy plants and equipments.

It is proposed to grant exemption, for five years, to industrial undertaking engaged in the manufacturing of equipment, plant and items required to produce solar and wind energy.

e. Concession of Customs Duty for Power Units: “Local manufacturing” condition is not applicable on import of machinery, equipment and other capital goods for power units valuing US $50 million and above.

It is proposed that the condition of `US$ 50 million and above’ may be replaced with the condition of `power units of 25MW and above’.

Mr. Speaker,

14. Incentives for Agriculture Sector are as follows:

a. Tax Holiday for Agricultural Delivery Chain: It is proposed that for new industrial undertakings engaged in

(i) setting up and operating cold chain facilities, and (ii)  setting up and operating warehousing facilities for storage of agriculture produce; May be granted Income Tax holiday for three years if they are set up before June 30, 2016.

b. `Halal’ Meat Production: Pakistan’s share in $1 trillion dollar global halal food market is a pittance. In order to encourage new investments in the halal meat production and to increase the use of modern and state-of-the-art machinery and equipment in this sector, companies which set up `halal’ meat production plants and obtain `halal’ certification December 31, 2016, are proposed to be allowed tax exemption from Income Tax for four years from the date of set up.

c. Relief to Rice Mills: Due to low demand in international market rice mills have suffered huge losses. In order to provide relief to them, it is proposed that rice mills may be exempted from minimum tax for the Tax Year 2015.

d. Exemption on Supply of Fish: Supply of agriculture produce including fresh milk, live chicken birds and eggs is exempt from deduction of withholding tax subject to certain conditions.

It is proposed that exemption from withholding tax on supply of agricultural produce may also be extended to supply of fish.

e. Import and Local Supply of Agricultural Machinery and Equipment: In order to promote farm mechanisation and enhance productivity it is proposed that non-adjustable sales tax at reduced rate of 7%,instead of existing rate of 17%, may be charged on the local supply and import of certain agricultural equipment/machinery used in tillage and seed bed preparation, seeding or planting, irrigation, drainage and agro-chemical application etc.

f. Import of Agricultural Machinery: At present Customs duty, Sales Tax and withholding tax on import of agricultural machinery in aggregate is 28% to 43%. It is proposed to reduce Customs Duty, Sales Tax and Withholding Income Tax cumulatively to 9% as under:

i. Customs duty from existing rate of 5-20% to 2%;

ii. Sales Tax from 17% to non-adjustable Sales Tax at 7%; and,

iii. WHT from 6% to 0%.

g. Interest Free Loans for Solar Tube Wells: In order to facilitate the small growers and to reduce heavy expenditure incurred on diesel/electricity tube wells it is proposed to provide interest free loans for setting up new solar tube wells or replacing the existing tube wells with solar tube wells.  It is estimated that the cost of half cusec solar tube well may be up to Rs1.1 million. Against a deposit of Rs100,000 the government will provide interest free loans through the commercial Banks. The interest on these loans will be picked up by the government.

Under this scheme it is proposed to provide interest free loans for 30,000 tube wells in the next three years. All farmers with landholdings up to 12.5 acres will be eligible to apply for this loan.

In case the number of applications in any one year is more than 10,000, the beneficiaries will be selected through transparent balloting. After installing solar tube well, a farmer using diesel engine for five hours a day, saving Rs1,660 per day and a farmer using electric pump for five hours a day will save Rs466 per day in running costs.

Mr. Speaker,

15. The contribution of Aviation Sector in Pakistan is a small fraction of one percent of GDP as compared to share of the sector at 3.4% in the global GDP. Our Government is confident that the following package shall cause a spurt in the growth of this sector. In this regard a few proposals are presented below :-

a. Exemption from Customs Duty and Sales Tax: It is proposed that Customs Duty and sales tax in respect of following items used in Aviation Sector may be exempted.

i. Aircraft – Whether imported or leased

ii. Maintenance Kits for Trainer aircraft.

iii. Spare parts for use of aircraft, trainer aircraft and simulator

iv. One time import of Machinery, equipment and tools imported by recognised  maintenance, repair and overhaul company

v. Operational tools, machinery, equipment and furniture and fixtures on one time basis for authorised Greenfield airports

vi. Aviation simulators by recognised airline company

b. Remote Area Routes: Infrastructure connectivity with major economic hubs is key to economic development of a region. Some areas of the country having great economic potential are however located far from existing major economic routes.

In order to open up remote areas through aviation links it is proposed that air routes in Gilgit-Baltistan, Makran Coastal belt, Azad Jammu and Kashmir, Chitral and FATA be exempted from payment of FED and withholding tax.

Relief Measures for Khyber-Pakhtunkhwa

Mr. Speaker,

16.

Last but not the least, let me share with this house some relief measures for Khyber-Pakhtunkhwa.

Mr. Speaker,

As all of us know that the economy of Khyber-Pakhtunkhwa has suffered immensely due to terrorism and efforts to counter it.

In order to revive the economy of Khyber-Pakhtunkhwa and to provide relief to the people, the following measures are proposed:

a) Five years Income Tax holiday on all new manufacturing units set up in KP between 1-7-2015 and 30-6-2018. Such units shall also be exempted from payment of turnover tax for five years.

b) To address the demand of traders and to facilitate exports from KP to Afghanistan, exports of perishable goods namely fruits, vegetables, dairy products and meat are proposed to be allowed against Pak currency instead of dollars with effect from 1-7-2015.

c) Quota for ghee and vegetable oil under DTRE for export to Afghanistan and Central Asia is proposed to be enhanced three times from 1000 Metric Ton per 90 days to 1,000 metric tonnes per month.

d) The legacy issues regarding minimum tax payable on turn over under the previous K-P package available for tax years 2010 to 2012 shall also be resolved.

Minimum Income Tax is leviable under the existing law however, to address the hardship of K-P businessmen suitable amendments shall be made.

e) The pending issue of Sales Tax refunds payable as a result of the above mentioned package shall be resolved latest by 30thSeptember, 2015.

Mr Speaker,

f) I would also like to share with this August House a breakthrough in trade with Central Asia. Exporters from KP in particular and other exporters in general were facing hardship because of the requirement of financial guarantees equivalent to110% of the Custom duty by Afghanistan on our exports to Central Asia. Moreover, our exporters had to pay US $100 on each 25 tonnes of export transiting through Afghanistan to Central Asia.

I am happy to announce that during the recent visit of the Prime Minister of Pakistan to Kabul, the issue was taken up with the Afghan side and Economic Adviser to Afghan President informed me on telephone on May 31, 2015 that they have decided to abolish these measures.

This decision will boost our exports to Central Asian countries, and will reduce the cost for exporters.