ISLAMABAD: Pakistan’s Federal Finance Minister Ishaq Dar is all set to present the second budget by the Pakistan Muslim League-Nawaz government in the National Assembly tomorrow.
The finance bill, which will be tabled in parliament next week, is expected to include Rs535bn ($5.35bn) in additional taxes and other administrative measures.
The ambitious new tax measures revolve around three pillars — documenting and taxing the rich, raising the existing withholding tax rates for non-compliant taxpayers, and increasing the income tax share in overall revenue collection.
Officials privy to the budget-making process say these proposals are aimed at offering industrialists a better environment through the lowering of customs duties. But this will not provide any relief to salaried individuals or the common man.
A well-placed source in the Finance Ministry said: “The Federal Board of Revenue has obtained approval from the prime minister for the new taxes.”
The government has projected an ambitious revenue collection target of Rs2,810bn for financial year 2014-15. But tax officials say this target is too high and predict that FBR may be able to collect not more than Rs2,700bn.
Any change in the sales tax rates will directly affect the weaker sections of society and have an impact on inflation.
Prime Minister Nawaz Sharif has agreed in principle to bring down the existing rate to single digit and has also approved the constitution of a commission to explore this possibility. At present only four percent of the total sales tax collected reaches the government, with fake receipts accounting for the bulk of the losses.
Sharif has agreed to bring down sales tax to five-seven per cent and to do away with input adjustments and refunds.
A tax official said: “The reduction in sales tax rate will bring political mileage for the PML-N government,” adding that this might not go down well with the International Monetary Fund.
The government is also expected to make receipts mandatory for all transactions. Tax authorities are considering offering incentives such as a lottery scheme to encourage people to obtain receipts at shops, restaurants, etc. While no exemptions will be withdrawn from kitchen items, stationery, pharmaceuticals and dairy products, the steel sector may see the sales tax rate climbing up to Rs7 per unit from Rs4 per unit.
A proposal is under consideration to levy over five percent sales tax on export proceeds, which will be charged from foreign buyers.
The government appears reluctant to give the salaried class tax concessions despite the fact that in the previous year, most wealth statements were filed by salaried individuals.
Experts suggest a 15 percent to 20 percent income tax concession for those earning more than Rs35,000 per month, while for those earning around Rs1.2m per month the concession may be around 10 percent.
To differentiate between taxpayers and non-taxpayers, the government has decided to increase the cost of doing business for non-taxpayers by increasing withholding tax across the board.
Internews
