“Broadening of tax base, removal of non-essential Statutory Regulatory Orders (SROs) and new measures will be key policy priorities,” according to the budget strategy paper 2016-17. The next year revenue target is being fixed at Rs3.650tr, up around 18pc from the current year’s Rs3.104tr.
Over 12pc growth in revenues is expected because of targeted 6pc rate of inflation and about 5.7pc real GDP growth rate. The rest has to come from new tax measures including withdrawal of SROs, penalising the non-filers and increasing tax rates on certain items.
There is a proposal to offer income tax breaks on listing of companies on the stock exchange and setting up of Greenfield projects. Incentives may also be offered for the revival of closed industrial units and BMR schemes
Finance Minister Ishaq Dar has hinted at making efforts to avoid putting extra burden on existing taxpayers and target the non-filers. The tax machinery, however, lacks the vision to facilitate the tax return filers or offer them incentives to become filers.
The different tax rates for return filers and non-filers introduced last year have made little difference because of cumbersome processes. The promise that active taxpayers list (ATL) would facilitate the filers to benefit lower tax rate through SMS 9966 confirmation has not worked as it involved a lengthy manual process for the taxpayer to update data with the banks and the financial institutions and the tax machinery.
The Ministry of Finance and the Federal Board of Revenue have finalised a list of new tax proposals to meet the target of additional revenues of about Rs175-200bn in the next year budget. While growth-oriented industries would be facilitated through lower import duties, some new areas are proposed to be brought under sales tax regime and others to be burdened with increased tax rates.
Under one proposal, sales tax will be imposed on all types of packed meat, animal feed and seeds used in cooking oil (like sunflower, seed meal, rapeseed meal and canola seed meal etc)while increased tax rate on packed milk is estimated to generate Rs12-15bn depending on the tax rate to be decided by the prime minister.
These packaged products are being treated as ‘luxury’ items under an understanding with the International Monetary Fund to withdraw tax exemptions to the affluent segments of society. In overall terms, the withdrawal of SROs is targeted to yield around Rs120bn in third annual round in next year budget.
Last year, the authorities had levied 10pc general sales tax on yogurt, cheese, butter, cream, desi ghee, whey and cream etc which is now proposed to be increased to standard 17pc. A proposal is also in hand to impose 5-10pc sales tax on branded fresh milk to bring livestock farms output under the tax net with about Rs10bn yield.
Another proposal seeks to increase tax on domestic sales of five major export sectors — textile, leather, carpets, sports goods and surgical goods. For these sectors, withholding tax exemption on electricity bills could also be withdrawn to bring them on a par with other industries liable to pay 5pc WHT.
A proposal to double withholding tax on cash withdrawal from banks by currency exchange companies is also on the table.
The government is also expected to bring into tax net the incomes of various funds including pension funds, service funds and business income of non-profit organisations, NGOs and trusts at half the normal income tax rates.
While the government has ignored the recommendation of tax advisory committee to discontinue prize bonds of larger denomination (Rs40,000 and Rs15,000) as people had started using them for non-banking transactions, for property deals etc owing to taxes on banking transactions, the FBR has proposed taxing winners of prize bonds at the rate of 20pc.
At the same time, there is a proposal to offer income tax breaks on listing of companies on the stock exchange, setting up of Greenfield projects and housing finance and bring financing of consumer items under additional tax net. Incentives would also be offered for revival of closed industrial units and balancing, modernisation and replacement schemes.
In a major move, the government is also expected to double tax on buyers and sellers of real estate to generate about Rs15bn. A flat 10pc tax is proposed on profit gains of properties within five years of holding. In the same vein, it is proposing WHT from 0.5pc to 1pc (of value) on sale of property for filer and from 1 pc to 2 pc for non-filer. On purchases, this tax has to go up from 1pc to 2pc for filer and from 2pc to 4pc on non-filer.
A 10pc sales tax is also expected on import of newsprint while excise duty on cement is expected to go up from five to 10pc. Increase in sales tax rate is also being proposed on plant and machinery not manufactured locally.
On the other hand, 16pc federal excise duty on banking services is proposed to be abolished in view of imposition of sales taxes on these services by the provinces to avoid double taxation following constitutional devolution.