Definition, objectives and Tools of Fiscal policy

Misbah javid 1029

Fiscal Policy of Pakistan

DefinitionAccording to Semuelson: fiscal policy is concerned with all

those activities which are adopted by the government to collect

revenues and make the expenditures so that economic stability

could be attained without inflation and deflation”

Objectives of fiscal Policy

1.Economic growth2.Full employment3.Optimum allocation of economic resources4.Increasing rate of investment (6.50% - may 2015)5.Reducing inequality of income and wealth6.Controlling inflation

Tools of Fiscal policyGovernme

nt expenditur

es

Government

revenues

Non tax revenue

Tax revenue

Non-Developme

nt

Development

Government Budget

Budget of Pakistan 2015-16o Budget : An estimate of costs, revenues,

and resources over a specified period, reflecting a reading of future financial conditions and goals.

Process of preparing budget of Pakistan: 1. Preparing of budget2. Consideration debts and approval of budget3. Communication of grant 4. Execution of budget5. Post budget allocation6. Post audit

Budget of PakistanRevenues:• 4.451 economic growth is expected(direct taxes 13457 billion) and (indirect taxes 1755 billion)Expenses: • Pension increased by 7.5%• Markup rate of Business Youth Loan Scheme reduced to 6%• Rs600 billion for agriculture sector.

• Rs 20.88 billion for health sector.• Rs71.5 billion for education• Rs 159.6 billion for national high way

authority• Rs151 billion for security for CPEC route• Rs78 billion for Pakistan Railways• Rs100 billion for TDPs• Rs 30.4 billion for Pakistan atomic energy

commission• Rs20.5 billion for HEC• Rs 112.28 billion for wapda• Rs 19600 mw for electricity

Government Expenditures

Government expenditures• Government expenditure is the spending made by the

government to achieve the fiscal objectives and increase the

general welfare of the people

• Basic objective of these spending is the welfare of the society

• Total expenditures incurred during 2015-16 Rs 4,451 billion

Types of government expenditures

Development or capital expenditure

Incurred for development purpose.Include expenditures incurred on long term planning projects • Irrigation• Transport• Communication• Industrial and agricultural

development• Railway, social welfare ,health

projects, education schemes • and on the projects of water ,gas and

electricity etc.

• 2015-16

Rs 969 billion• The

share in total budget outlay was 21.8%

Include expenditures incurred on day to day functioning: • Defense• Economic, community and social

services• Maintenance of law and order,• General administrator• Debt servicing • Government subsidies etc.

Non Development or current expenditure

Current expenditure2015-16Rs 3,482 billion.• The

share in total budget outlay was 78%

Government expenditures financed by these sources

• Internal source: include recoveries of advances and loans, floating and permanent debt ,savings schemes of the government etc.

• External source: Foreign aids which includes project aid ,technical aid ,grants etc.

Direct Taxes

Direct taxes

Disadvantages• Lump sum amount• Evasion• Arbitrary

Advantages • Economical• Fairer• Elasticity

Definition:Direct tax is the tax that is directly paid by the person on whom it is imposed. And direct tax is current ratio is 0.8%.

Types of Direct taxes

•

There are four types of direct tax.o Income tax this type of tax current ration is 20%o Property tax this type of tax current ratio is 0.0%o Corporate tax this type of tax current ratio is 33%o Wealth tax this type of tax estimated on total wealth of a person.

Indirect Taxes and Non tax revenue

Indirect taxes

Disadvantages• These taxes are paid by

everyone.• Indirect taxes are regressive

in nature.• Indirect taxes are

inflationary.

Advantages • Indirect taxes evasion is

almost impossible.• Indirect taxes are not

painful.• Indirect taxes are equitable

and elastic.

Definition: Indirect tax is the tax which is not paid by the person on whom it is imposed and its burden is shifted tosomeone else

Types of Indirect taxes

Sales tax : A sales tax is a consumption tax imposed by the government on the sale of goods and

services.Custom duty : Customs taxes are applied to

imported and exported products.

Excise duty: it imposed on the producer and is shifted to the consumer

Non-Tax revenue

• Income from property and enterprise• Profit from post office and telegraph • Trading profit• Interest receipts• Surcharges