GOVERNMENT OF KHYBER PAKHTUNKHWA BUDGET STRATEGY PAPER ( )

Transcription

1 GOVERNMENT OF KHYBER PAKHTUNKHWA

2 Contents EXECUTIVE BRIEF... 1 Reforms... 2 Finance Bill... 3 MEDIUM TERM FISCAL FRAMEWORK... 4 Macroeconomic Outlook... 4 Basis for medium term projections... 7 Table 3. FBR tax revenues... 7 SECTOR PRIORITIES AND NEW INITIATIVES... 9 PUBLIC FINANCIAL MANAGEMENT REFORM Public Financial Management Reforms Strategy Education Sector Budget Reforms Business Planning Internal Audit Embedding the Medium Term Budgetary Framework Finance Bill

3 EXECUTIVE BRIEF The Government of Khyber Pakhtunkhwa is highly dependent on transfers from the Federal Divisible Pool. Pakistan s economy continues to underperform compared with other regional economies. Economic recovery depends on resolving three of the most critical constraints, energy shortages, law and order and governance situation. Due to worsening economic situation, tax collection targets by Federal Board of Revenue are revised several times from almost Rs 2.38 trillion to Rs 2.05 trillion. This has resulted in a shortfall of Rs 39 billion of the Khyber Pakhtunkhwa share of the federal divisible pool. The revenue targets have been missed each year over the last three years by 3.8 percent, 6.6 percent, 3.5 percent from to respectively. In the current financial year, the deviation between estimated and actual receipt from the federal government is extremely high i.e.13.9 precent. Khyber Pakhtunkhwa fiscal space will remain under pressure due to a number of reasons which includes; increase in wages and pensions; inability of the federal government to meet revenue targets; security pressures; relief activities and an increased size of the government. The strategy of the government to maximise the fiscal space and transfer its benefits to the people is to generate more resources; facilitate investments; establish a framework for public private partnership and also to reduce the non-development government expenditure through a series of economy measures which will be applied from the top. For the financial year total size of the budget is Rs: 344 billion. Rs: 211 billion is current revenue budget, Rs: 118 billion is the development budget and Rs: 15 billion is current capital budget. The Coalition Government of Khyber Pakhtunkhwa is striving to bring radical changes in the government systems so that each rupee spent creates an impact on the lives of ordinary people and bring them out of vicious cycle of poverty and depreciation. Key areas of focus are; Improving the fiscal space through enhancing the revenue collection system. The most significant step in this budget is establishment of Khyber Pakhtunkhwa Revenue Authority and introduction of infrastructure tax. Establishing peace and security and making police stations more responsive to the citizens. Establishing a uniform system of education by declaring education emergency and bringing radical changes in the education system. Among other things a Chief Minister Endowment fund is proposed to provide financial assistance to deserving students; public private partnership in education sector and Rs 1 billion is allocated as conditional grants for school improvement. Health care delivery at district level will be revamped and need based allocations will be made to districts on the basis of objective indicators like Maternal Mortality Rate, immunization rate, poverty rate and status of malnutrition amongst children. Referral system will be introduced and public private partnership in health sector will be deepened. 1

4 Energy emergency is declared and in addition to completing ongoing hydel energy projects, new ones will be taken up and potential of alternative energy like solar energy, wind energy and coal powered thermal power plants will also be explored. To facilitate investment; an industrial development company will be established and incentives will be given to the industrialists to facilitate economic growth. A private sector company will be established to facilitate relevant trainings in skill development. Villages will be the engine of growth and development. Amendments will be made in the Local Government Act 2012 and Rs 1 billion is allocated for holding local government elections. Policy and Governance Framework on Community Driven Local Development will be operationalized and for that Rs: 500 million are allocated in the budget. Khyber Pakhtunkhwa is blessed with energetic and hard working youth. In each divisional head quarter, youth centres will be established and special arrangements will be made to upgrade sports facilities in the province. Reforms The Government of Khyber Pakhtunkhwa is determined to root out corruption through improving the system. Chief Minister complaint cell is established which will investigate all the complaints regarding corruption or nepotism. Land record management will be improved to curtail the discretion of patwaris. First information reports will be registered on the basis of telephone calls and police stations will be made friendly for women Under right to information, the format of Medium Term Budgetary Framework will be imbedded to the make the budget more transparent and better aligned to the polices and priorities of the government. Guidelines for the purpose are prepared and it will be mandatory for all the government servants to follow the guidelines in letter and spirit. Citizen s budget will be prepared and made available to the public. Budget Strategy Paper will also be made available on the web site of the Finance Department. Midyear budget execution reports will be made public and the departments will be required to update the cabinet on the progress against Key Performance Indicators. Internal audit departments will be established and strengthened and monitoring and evaluation within the department will be a mandatory activity. Special attention will be paid to Public Financial Management Reforms in the Elementary and Secondary Education Department. This includes introduction of portfolio budget which will complement the Output Based Budgeting. Strategic planning and business planning activity will be strengthened. Intensive trainings will be imparted to help imbed the PFM reforms in the province. In this regards user-friendly operational manuals on all aspects of budget cycle will be prepared and disseminated. 2

5 Finance Bill Khyber Pakhtunkhwa Revenue Authority is being established on the lines of Sindh Revenue Authority and Punjab Revenue Authority. Sales Tax on Services Act is part of the Finance Bill, which amends Sales Tax Act

6 MEDIUM TERM FISCAL FRAMEWORK Macroeconomic Outlook The Government of Khyber Pakhtunkhwa is highly dependent on transfers from the Federal Divisible Pool. Pakistan s economy continues to underperform compared with other regional economies i.e. India, Sri Lanka, and Bangladesh. The prospects for the coming year are highly uncertain and depend on three of the most critical constraints, energy shortages, law and order and governance situation. This year, country s GDP growth is expected to post a modest recovery backed by large scale manufacturing growth. Remittances are the redeeming feature as in the current financial year, full year remittances are expected to surpass the amount of US$13.2 billion in the previous financial year. 1/3 rd households in Khyber Pakhtunkhwa receive remittances and thus, the improvement of remittances at national level has linkage to economic growth within the province. Remittances stimulate the domestic demand as in the current financial year the construction sector responded to the demand for housing which was beefed up by remittances. Inflation continuously sliding downward started moving up at the end of the first half of financial year The headline (CPI) inflation has been revised downward between relative to targeted average inflation of 9.5 percent. Revenue collection by Federal Board of Revenue does not depict an encouraging picture; there have been frequent revisions in the revenue collection targets as the federal government has failed to meet the revenue targets. As a result, during the financial year , short fall of the share of Khyber Pakhtunkhwa from the federal divisible pool is Rs 35 billion. Vulnerabilities to the economic outlook in general and province in particular originate from the poor law-and order situation and stubborn problems in energy sector which cause the external investors to shy away. Keeping in view the changeover of the government coinciding with the advent of the new financial year, it is anticipated that the overall budgetary policies will incorporate emergent actions in the upcoming financial year. Given that energy shortages are not expected to disappear in the short-medium term, GDP growth in the next financial year is not likely to significantly increase. The country s growth prospects are also linked to the external factors and demand such as global oil prices, international food commodities prices, growth in developed and developing world supporting domestic production and exports. During 2012, global growth remained at 2.3 percent with a slight uptrend in 2013 i.e. 2.4 percent. A gradual revival of 3.1 per cent and 3.3 per cent is expected in 2014 and respectively. Growth in Developing countries is forecast to rise to 5.7 during 2013, rising still further to 6.4 and 6.7 per cent in the next two years 1 World Bank Economic Outlook

7 MEDIUM TERM FISCAL FRAMEWORK OF THE GOVERNMENT OF KHYBER PAKHTUNKHWA FOR FINANCIAL YEAR TO Rs. In million (unless otherwise stated) Budget Estimates Revised Estimates Budget Estimates Projections Variation B/W Original & Revised Estimate(s) REVENUE Total Revenue Receipts 279, , , , , % Federal Tax Assignment 183, , , , , % 1% for War on Terror 22,071 19,293 23,823 27, % GST on services 9,886 4,290 6,000 7,200 8, % Provincial Own Revenues 10,214 10,112 10,921 12,075 13, % Straight Transfers 22,158 19,925 27,496 31,895 37, % Net Hydel Profit 6,000 6,000 6,000 6,000 6, % Arrears of Net Hydel Profit 25,000 25,000 25, % Transfers to District Govts: 85,512 83, % Wages 71,138 67, % Transfers 12,702 14, % Annual Dev: Programme (Distt:) 1,672 1, % Net Revenues after Transfers 193, , , , , % EXPENDITURE Current Expenditure 98, , , , , % Wages 44,299 43, , , , % Pension 21,582 21,582 24,000 28,800 34, % Non-Wage O&M and Contingency 16,916 20,458 29,259 31,015 33, % Subsidy 2,500 2,500 2,500 2,750 3, % Transfers to Local Council - - 3,741 4,115 4,527 Relief Measures 3,900 6,606 5,093 5,602 6, % Committed Contribution 9,000 9,000 10,000 10,000 10, % 5

8 Rs. In million (unless otherwise stated) Budget Estimates Revised Estimates Budget Estimates Projections Variation B/W Original & Revised Estimate(s) Development Expenditure 95,786 86, , , , % Annual Development Program 72,528 71,978 83,000 74,812 68, % (including operational shortfall) Special Programme (PSDP) - 3, Foreign Project Assistance 23,258 10,760 35,000 38,500 42, % PRIMARY BALANCE ,384-20,322-23,003-25,380 GRANTS AND INTEREST PAYMENTS Federal & Foreign grants 20,040 13,099 41,936 45,006 48, % Federal Dev. Grants - 2, Foreign Dev. Grants 19,563 9,944 30,695 33,765 37, % Others (including operational shortfall) ,241 11,241 11, % Interest Payments 9,563 9,563 11,169 12,286 13, % OVERALL BALANCE 9,997-24,848 10,445 9,717 9,488 BUDGET FINANCING Net Domestic Debt -1,200-1,078-1, Net Federal Debt -3,039-3,004-3,125-3,438-3,781 Net Foreign debt -5-1, ,105 Net Capital -5,753-5,753-6,040-5,753-4,602 Cash Balance Total Financing -9,997-11,150-10,445-9,718-9,488 (Deficit)/Surplus -35,

9 Basis for medium term projections Keeping in view the dependence of KPK on federal divisible pool, FBR tax collection and the taxto-gdp ratio are the most important determinants of the extent of resource availability for the province. The growth of tax revenue collection during the FY , is failing to maintain the trend of growth as compared to previous years. Resultantly the shortfall in FBR tax revenue will adversely affect the revenue position of the Khyber Pakhtunkhwa province.. The FBR revenue target of Rs billion was revised to Rs billion 2 by December, 2012, up to the first half of the current financial year. The revised target has again been revised to Rs billion 3. The position of deviation between original and revised targets is given below: Table 3. FBR tax revenues FBR tax revenue Rs. billion Rs. billion Rs billion Rs. billion Target Revised target Actual collection (P) Tax-to-GDP ratio 9.1% 8.6% 9.2% 9.0 % (P) Deviation of actual collection from the target 3.8% 6.6% 3.5% 13.9% Source: various issues of FBR Quarterly review and Economic Survey of Pakistan Note: P denotes provisional. The revenue targets have been missed each year over the last three years by 3.8 percent, 6.6 percent, 3.5 percent from to respectively. In the current financial year, the deviation between the target and the revised figure of tax revenue is extremely high i.e.13.9% percent. 2 FBR Quarterly Review report, October-December, Provisional unofficial sources 7

10 In view of the fact that energy shortages are persistent hurdles with no immediate solution, it is anticipated that the revenue targets will continue to be affected over the medium term time horizon of the next two financial years. Hence the FBR tax revenue is projected to increase at an annual average of 8% in the first year. Share of KP from undivided divisible pool, will follow the same pattern, except that in year 3, it is assumed that with the completion of 7 th NFC term, this may discontinue. Sales Tax collection has been abysmal. Against the target of Rs9.8 billion, only Rs 4.29 billion were collected. Since Khyber Pakhtunkhwa plans to establish a Revenue Authority which will start revenue collection from 1 st July, therefore it is estimated that the revenue from GST collection will increase to Rs 6 billion in financial year , increasing to Rs 7.2 billion and 8.6 billion in the two subsequent years. As compared to federal transfers, the province has been able to meet the tax collection target and it is expected that the provincial receipts will continue to grow. A contributing factor can be introduction of infrastructure tax. Amount received against net hydel profit has remained stagnant at Rs 6 billion and despite the position of the government, a conservative option is taken and it is estimated that the province will continue to receive the same amount in the outer years. Financial year is the year in which the provincial government will receive last tranche of Rs 25 billion. This will create a dip in the receipts of the provincial government. On expenditure side, the government has taken many measures to introduce economy in the government spending. This includes ban on recruitments, 25% cut on the non salary expenditure and Governor House and Secretariat, Chief Minister House and Secretariat and the Secretariat of the Provincial Assembly. It is expected that wage bill will increase moderately but pension payment will increase at a rapid rate of 20% each year as compared to 10 % of wage bill. The volatility in the provincial revenue originating from the variations in the federal transfers, particularly Federal tax assignment, it is imperative for the province that measures are taken to mobilise the provincial revenues. In addition, collection of GST on services will be in the provincial domain from the next financial year. 8

11 SECTOR PRIORITIES AND NEW INITIATIVES The Coalition Government of Khyber Pakhtunkhwa is striving to bring radical changes in the government systems so that each rupee spent creates an impact on the lives of ordinary people. Key areas of focus are; In education sector, the policy of the government is to ensure achievement of Millennium Development Goals by 2015; ensuring that participation rate at primary level attain 100% while secondary level participation to be enhanced by 50% by 2015; enhancing quality of education standards in Khyber Pakhtunkhwa; and removing gender and ethnic disparities. The Government of Khyber Pakhtunkhwa on priority basis will reduce the gender gap in education. The target is to double the number of girl s schools during five years period. Female education has remained a low priority area in the past and therefore the gap between male and female education is widening. To encourage the parents to send their daughters to schools, a stipend of Rs 200 per month will be given. The government will do a comprehensive mapping of schools to provide an informed basis for future years. The conditions of existing schools will be improved in a participatory manner through conditional grants. For this purpose in addition to DFID support the government has allocated Rs 1 billion. Rs 500 million are allocated for establishment of Chief Minister Endowment Fund. This fund will be managed through an education foundation and will support all education institutions to increase the number of seats for self financing and deserving students shall be supported through these schemes. This fund will also support the voucher scheme in which school fee will be paid for the students enrolled in private sector schools in poor areas. The health status of Khyber Pakhtunkhwa is complex, with the private sector providing 70% to 80% of all services. The low rate of attended births is particularly worrying and immunisation is lower than in Punjab. Key polices of the government are; up gradation of health care facilities; measurable impact on health MDGs 4,5 ; social protection for low income and vulnerable groups; capacity building for evidence and outcome based planning and focusing on community led community health programmes and public private partnerships. Improvements in management and emergency response are also included. Some of the new initiatives which will be funded during the current budget are as follows; In districts selected on the basis of poverty, poorest 20% of the population will be provided health insurance. The insurance will cover diseases like Cancer, AIDS, Renal failure, Hepatitis and Drug abuse. Rs 500 million are allocated for this purpose in the budget Preventive health will be a priority and within preventive health, special initiative is launched to support Mother and Child Health. A fund will be created at the initial allocation of Rs 300 million. 10 districts will be selected on the basis of high incidence of maternal mortality. In these districts, female population living below the poverty line shall be provided cash grant of Rs 200 at the time of medical check up from a qualified doctor once in three months. Similarly, at the time of delivery from a qualified doctor or a mid wife, Rs 1000 of cash grant will be provided. 9

12 Immunization rate in KP has remained low. In order to improve the immunization rate; 10 districts with least immunization coverage will be selected. In these districts, the families which are in poverty bracket and in which children complete the immunization course will be rewarded with Rs 1000 per child. For this purpose Rs 200 million are included in the budget. Radical changes will be made in the health care delivery system. Basic Health Units will be converted into Community Health Centres and improvements will be made in the existing Rural Health Centres. A detailed survey will be done so that decisions are made on the basis of credible data. In least developed districts, children living under poverty line will be provided nutritional packages through a nutrition programme Emergency centres of the major hospitals will be provided state of the art equipment to better deal with large number of causalities. In energy and power, the Khyber Pakhtunkhwa does not take full advantage of its hydel potential. Two broad possibilities are raised. First, the province can earn revenue by selling electricity on the national grid. Second, the province can set up electricity stations that, while covering their costs, could sell power within the KP at a lower rate. The lower price for electricity could help to offset some of the transport disadvantages arising from the province's geographical location that affect competitiveness. Currently, two hydel projects at Machai and Ranolia are complete and from the next financial year will add 20 megawatt electricity to the national grid. In addition, three projects are ready for construction these are Sharmai (150 mw), Shahgai (144 mw) and Zandoli (132 mw). These projects await approval by the Federal Government. The Government has declared an energy emergency and in addition to fast pace completion of hydel projects, will also start some fast moving alternative energy projects. These include; Feasibility study for a 200 megawatt Gas Thermal Power Station to be constructed in District Karak or Kohat. Work on 10 megawatt solar power plant will be completed during a period of one and a half year Feasibility study for using the wind energy will also be done during the year. For disposal of urban waste, a 2 mega watt bio plant will be installed in Peshawar city. The government shall incentivize investment in KP, by providing cheap electricity to an industrial state through 18 megawatt Pehur Hydel Plant 100 villages which are situated at a distance from the national grid shall be provided electricity through solar energy. Infrastructure. The policy of the government is to; enhance existing road densities through construction and up-grading of existing network; rehabilitation of roads that have outlived their design life; and construction of missing road links. Demand for road transport has been expanding at a rate that is much faster than economic development as a whole. The government continues with the programme of improving and expanding the road network, but stresses that the share of resources devoted to road maintenance will be greatly increased. 10

13 There are substantial opportunities for expanding the irrigated area in Khyber Pakhtunkhwa. The policy of the government is; sustainable development of irrigation infrastructure with focus on holistic management and institutional reforms; transparent and sustainable management of water resources; improving irrigation service delivery and improving on farm water management. Greater emphasis will be placed on maintenance, because of the growing constraints in overall water supply. In view of the likely impact of climate change, priority is also given to investment in water efficiency programmes and to flood protection. Economic Management. About three quarters of the population in Khyber Pakhtunkhwa are at least partly dependent on agriculture. The policy of the government is to shift from conventional cropping patterns to high value, high yield varieties of crops, fruit and vegetables; to promote efficient use of water resources; to minimise the environmental risks associated with unsustainable means of agricultural production and reforming the agricultural marketing system to improve profitability, productivity and value for money for producers and consumers. Government will provide assistance to people through improved access to inputs and technology and through a programme of investment in land levelling and development and investment in water harvesting that is geared towards increased efficiency and productivity. Funds are also allocated for development of Value Chain Management Company to help the farmers gain access to modern tools. Khyber Pakhtunkhwa is going through stagnation in industrial sector. This is partly due to law and order situation, flight of capital and energy shortages. The government will establish a Khyber Pakhtunkhwa Industrial Estate Management Company to improve the investment climate in the province. For this purpose Rs 200 million are allocated in the budget Major opportunities exist for the expansion of employment through business creation in minerals development. Public investment in infrastructure will allow these opportunities to expand efficiently. Other reforms will be introduced to improve the business climate. Likewise private sector development will also be facilitated. The services in technical education are constrained by limited funding. The Government is committed to improving the scope and content of technical education to match more closely the needs of employers in Khyber Pakhtunkhwa. Rs 150 million are allocated for establishment of Technology Upgradation and Skill Development Company. In addition Rs 100 million is allocated for skill development programme for providing technical training to youth between 18 to 25 years of age. 11

14 Urban Development. The Government has developed Urban Development Plans for 22 urban areas in Khyber Pakhtunkhwa. These cover the main public services, including water, sanitation, drainage, streets and public infrastructure to accommodate private services in transport, agriculture and trade. Urban Policy Unit will be upgraded and the unit will be tasked to prepare plans for solid waste management and installation of water treatment plants in urban centres. Peshawar City has a good potential to establish a road transport net work. A feasibility study will be done to identify possibilities of constructing a cost effective and efficient road transport system in Peshawar city. Tourism. In the long run, tourism offers a source of employment and income generation. Given the unsettled regional situation, the immediate prospects for international tourism are limited. However, it is worth exploring the prospects for attracting domestic tourists to the Northern Areas are bright. The key policies of the government are to develop a public private partnership framework; increased tourist traffic in the province by at least 10% every year for the next five years; ensure Rs 50 billion investment in the provincial tourism sector in the next five years. The government is pursuing a programme of public administration reform to improve efficiency and governance. Local Government reforms are top on the agenda of the government. Rs 1 billion are allocated in the budget for holding an early local government elections and making necessary amendments in the existing laws. The Government of Khyber Pakhtunkhwa will focus on villages for generating economic activities at the grass root level through citizen participation. The Government has adopted a policy and governance famework for Community Driven Local Development. Direct transfers will be made to the village based organisations to engage them in local development. In the first phase this activity will be piloted in Malakand Division where in addition to support from the European Union, the Government of KP will provide Rs 500 million. 12

15 PUBLIC FINANCIAL MANAGEMENT REFORM Public Financial Management Reforms Strategy The Government of Khyber Pakhtunkhwa has adopted a Public Financial Management Reforms Strategy that builds on the following objectives; Making budget strategic by linking it with the policies and priorities of the government Making budge result oriented by linking budget with outcomes, outputs and output indicators Enhancing the capacity of public finance managers to seamlessly adapt to the new system Improving budget execution Accountability for results During the current fiscal year, finance department will be to take stock of the progress on the reform strategy and better align it with the goals of the government to provide better access to the people of Khyber Pakhtunkhwa not only to the budget documents but also to ensure participation in policy making, budget preparation, budget execution and monitoring. Key areas in which the reforms will be extended are; Preparing a citizen s budget Sharing budget strategy paper with the citizens Extensively engaging the citizens through pre-budget consultations at the grass root level Implementing the Policy and Governance Framework on Community Driven Local Development Improving the implementation of Conditional Grants in education and health sectors Sharing regular budget execution reports with the public Sharing end of the year budget execution reports with the public Education Sector Budget Reforms Keeping in view the importance of education sector the government plans to prepare detailed portfolio budget to track expenditure and facilitate the implementation of education emergency. The objective is to get more boys and girls into school, with a better learning environment and a higher quality education for all children. The ultimate aim of this budget is to provide much greater economic opportunities for our children as well as contributing to peace and prosperity for our Province. 13

16 Giant steps have been taken by This Government in improving transparency on ESE allocations for the benefit of all stakeholders including parents, teachers and officials. Such steps deliver on this administration s promise to actively pursue increasingly accountable Government. In particular, the increased transparency of this budget means much more accountability to Cabinet, Parliament, locally elected bodies provided for in recent provincial legislation, civil society and tax payers as well as the most vulnerable members of our communities. Moreover, this budget provides the foundation to deliver on one of this Government s primary objectives to transform our institutional capacities and rid ourselves of the curse of corruption and mismanagement. The budget will present This Government s new education spending policies that include target improvements in enrolment and retention rates, reductions in social and gender inequities and delivering increased resources where they are needed the most at our schools. It also attends to the impending education fiscal cliff posed by pension policy decisions and teacher hiring practices of previous administrations. Key Performance Indicators (KPI) are currently being reviewed for the Education Sector Plan and through the Roadmap delivery and monitoring mechanism. Consistency with Output Based Budget publications is being pursued. High level indicators will likely be those contained in the budget preparation system including enrolment rates, student teacher ratios, gender parity and district shares. Lower level KPIs are being considered within the context of spending activity costing. For example, where a spending activity was costed on the basis of 30 workshops delivered in 15 districts, the KPI would be those cost drivers. The document is prepared on pilot basis to share with public and stake-holders and get their feedback and also to build capacity within the education department to enable the staff prepare the budget on their own. Once the document is disseminated and skills developed the plan is to present the portfolio budget document for the approval by the cabinet and the provincial assembly for the financial year

17 Business Planning A business plan makes it much easier to translate a strategic plan into a budget. When the translation is smoother and more precise, it will simplify the process of identifying and removing spending from the budget that is not aligned with the strategic plan. Also, elected representatives will have more confidence that the budget is aligned with their priorities, and will be more supportive of the integrity of the spending plan throughout the year. Besides, it will help the provincial government achieve aggregate fiscal discipline, allocative efficiency and operational efficiency by reducing in year adjustments i.e. reappropriations, supplementary/excess grants and surrenders and will help in further reducing the budget outturn variations. While being fully conginzant of the significance of business planning, last year it was endorsed by the provincial cabinet to introduce it in the six department s of Health, Irrigation, Public Health Engineering, Higher Education, Social Welfare and Population Welfare Departments on pilot basis. These departments prepared their buisness plans as part of their annual budget for The concept of business planning based on learnings in the pilot phase will be extended to other departments in the coming years. Internal Audit Internal Audit being an integral component of the Internal Control System contributes significantly to the effective implementation of the policies, programmes and actions and to the most economic and efficient utilization of resources. The Internal Audit Service audits the management and control systems that exist within the Government and provides continuous independent and objective assurance on their adequacy and effectiveness. On the request of management, it also offers consulting services. Realizing the significance of this functionality, the provincial cabinet approved the concept of Internal Audit. Consequently, an Internal Audit Charter in the light of International Standards for the Professional Practice of Internal Auditing (ISPPIA) and best practices in public sector internal auditing was successfully prepared and approved. Initially, it was piloted in Finance Department and an Internal Audit Unit was notified for the purpose. This unit carried out internal audit of payroll and pension which resulted in the identification of greater cost efficiency in payroll and pension. 15

18 For enhanced value addition to the public money, the provincial government will be extending this functionality to other line departments with adequate institutional mechanisms to ensure high quality audit in the most economic, efficient and effective manner. Embedding the Medium Term Budgetary Framework The government will imbed MTBF in all departments of the provincial government. In this regard user friendly operational manuals are developed to guide the officials in central and line departments in the budget making process. The objective is to improve the capacity of government officials adapt to help them adapt to the new budgetary system in an effective manner. The agenda of the government is to improve the quality of life of the poor citizens of Khyber Pakhtunkhwa by allocating resources to target areas on the basis of objective criterion like school enrolment, immunization rate, and poverty rate; instead of fund allocation on discretionary basis. MTBF will help implementation of the government policies and therefore capacity building becomes an urgent priority. Finance Bill 2013 Sales Tax on Services is a provincial domain which has been reiterated in the 7 th NFC Award. It is presently collected by the Federal Board of Revenue under the STS Ordinance 2000 on behalf of Khyber Pakhtunkhwa. In Sindh and Punjab, collection on STS has been provincialized respectively w.e.f and 2012 after establishment of Sindh Revenue Board and Punjab Revenue Board. After establishment of KPRA, collection of STS will be provincialized in Khyber Pakhtunkhwa with effect from 1 st July Sales Tax Ordinance of 2000 will be repealed and replaced by a more progressive Sales Tax on Services Act 2013 which is based on best global practices of collection of Sales Tax on Services. The act will also cover long distance international calls dialled from abroad into the province, as a result, STS will be levied at the rate of 19.5% on all those calls which are dialled from outside the country in the province. 16