ISLAMABAD: The PML-N government has imposed Rs231 billion new taxes in its second budget with relief measures for industrialists and foreign investors.
The focus of tax proposals is to increase share of direct taxes in overall taxes, document the economy, remove distortions in tax laws, and promote foreign direct investment and industrialisation.
For the first time in history of the tax department, revenue measures – sales tax, excise duty and customs duty – will not be implemented from June 4 because there was no legal cover for it.
The Federal Board of Revenue will now have to withhold implementation of revenue measures till the passage of the budget by parliament later this month.
Last year, the Supreme Court had struck down the Provisional Collection of Taxes Act, 1931, which empowered the tax department to implement revenue measures from the next day of presentation of the budget.
Two tax commissions on reform and rationalisation of general sales tax were constituted.
The budget proposes to raise Rs231bn through new taxes and withdrawal of SROs – direct and indirect taxes.
The total revenue to be generated through withdrawal of SROs is estimated at Rs103bn, including Rs36bn through income tax, Rs35bn through sales tax and Rs32bn through customs duty.
An amount of Rs128bn, including Rs108bn in income tax, Rs16bn in sales tax and Rs4bn in customs duty, will be collected through additional revenue measures.
Due to inflation and economic growth, nearly Rs304bn will be raised outside the tax measures. The government hopes these measures will help achieve a revenue target of Rs2,810bn. The revenue target for 2013-14 was revised downward to Rs2,275bn.
Income tax measures: The government has exempted profits and gains earned by coal mining projects in Sindh that supply coal exclusively to power generation projects from payment of tax.
It also decided to tax their dividends at a reduced rate of 7.5pc; capital gains tax proposed to be 12.5pc for securities held up to 12 months and 10pc for securities held for a period between 12 and 24 months.
Five-year income tax exemption will be given for setting up processing plants for locally-grown fruits in Balochistan, Malakand Division, Gilgit-Baltistan and Fata. Customs duty and sales tax will also be exempted on import of equipment for these areas.
A reduced rate of 20pc on investment in new industrial undertakings to be set up by June 2017 and at least 50pc of the project cost, including working capital, is through FDI in equity; corporate tax rate is reduced to 33pc from 34pc; 50pc reduction in tax liability of disabled persons on income up to Rs1m; and the government withdrew the income support levy introduced last year.
To facilitate the non-residents, it is proposed that if one member of the joint venture is a company, it should be taxed separately at the applicable rate while the individuals should be taxed as an AOP separately; the income tax concessions at Gawadar coast given to China Overseas Ports Holding Company.
The rate of withholding tax on functions and gatherings has been reduced to 5pc from 10pc; exemption granted to Sindh Pension Fund; the entire amount of flying allowance exceeding an amount equal to the basic salary be taxed at a concessional rate of 7.5pc; Rs1 per unit of electricity consumed with electricity bill will be charged from every steel melter, steel re-roller, composite unit of melting, re-rolling and MS cold.
Withholding tax rate has been reduced to 14pc from 15 pc, airlines may collect advance tax at the rate of 3pc on the sale of first class and club / executive class air tickets if the passenger is a compliant taxpayer, and 5pc tax if the passenger is a non-compliant person.
An adjustable advance tax will be collected on purchase of immovable property at a rate of 1pc for compliant taxpayers and 2pc for non-compliant persons. However, properties whose values do not exceed one million rupees and schemes introduced by the government for expatriate Pakistanis will be excluded.
The government will collect 7.5pc advance tax from domestic electricity consumers on a monthly bill of above Rs100,000.
The government introduced additional tax for those persons who did not file income tax returns – 5pc for dividend income, 5pc for interest income above Rs500,000, 0.2pc for cash withdrawals from banks and 0.5pc in case of advance capital gains tax collected from seller of immovable property. This tax will be in addition to the tax collectable from return filers.
In addition, currently the highest rate of tax is for vehicles above 2000CC. It has been proposed that two higher slabs may be added for vehicles from 2501 to 3000cc and above 3000cc with higher rates of tax. For non-filers the rates will be double.
Another proposal was that debt securities be included in the definition of securities. However, companies shall be excluded from such deduction. An alternative corporate tax at 17pc is proposed to be imposed on accounting income, excluding the exempt income of companies, to avoid tax evasion.
The rate of deduction of tax on services for corporate taxpayers was increased to 8pc from 6pc and for non-corporate to 10pc from 7pc; the rate of initial depreciation on buildings is proposed to be reduced to 10pc.
It is proposed that non-profit entities be granted a 100pc tax credit instead of exemption; obtaining NTN a compulsory condition for obtaining commercial/industrial electricity and gas connections.
The rate of tax on advertising agents has been raised to 10pc from 5pc; exemption from deduction of withholding tax be withdrawn on foreign news agencies; the rate of tax on dividend distributed by Mutual Funds to companies in respect of interest income shall be 25pc, instead of 33pc, applicable to companies.
It was proposed that bonus shares be treated as dividend and tax deducted at a rate of 5pc of the ex-bonus price of the shares. Foreign institutional investors will be brought under the withholding tax regime.
The rate of withholding tax has gone up for commercial importers by 0.5pc, resident and non-resident contractors by 1pc, suppliers by 0.5pc, payments made by exporters/export houses on account of services of stitching, dying, printing, embroidery, sizing, weaving by 0.5pc, petrol pump operators by 2pc and commission agents by 2pc.
However, they will have the option of filing returns and accounts. In such case the current rates of tax deduction will be minimum tax rates for them. If an individual chose not to file the return, the tax deducted will be final tax.
It is proposed that advance income tax be collected by Excise and Taxation Departments on transfer of private motor vehicles for a period of 5 years. The rate of tax will be the same as that for registration of a new motor vehicle and will be reduced by 10pc in every subsequent year.
Sales tax and federal excise measures: A levy of 17pc was proposed on rapeseed, sunflower seed and canola seed; 17pc sales tax on import of finished articles of leather and textile. The government proposed 5pc sales tax on import and supply of plant and machinery not manufactured locally; impose 17pc sales tax on remeltable scrap; 5pc sales tax imposed on oilseed for sowing, and raw and ginned cotton. However, local supply of raw and ginned cotton shall remain exempt. The rate of sales tax at 5pc proposed on soyabean meal, oil cake and directly reduced iron, and 17pc sales tax on purpose-built taxis.
Sales tax on the steel sector, ship-breakers and steel melters operating in sugar mills will be rationalised.
The Federal Excise Duty (FED) on international travel will rise to Rs5,000 from Rs3,840 on economy and economy plus, Rs10,000 from Rs6,840 on club, business and first class; 16pc on chartered flights on full amount charged; replacement of capacity tax on aerated waters to charge normal tax rate of 16pc; FED on cigarettes increased; on cement the specific FED was replaced by 5pc on retail price.
The FED on locally-produced cigarettes has been raised by 13.21pc if retail price exceeds Rs2,286 per thousand cigarettes, and by 23.30pc if retail price does not exceed Rs2,286 per thousand cigarettes.
To bring the undocumented retail sector in the tax net, retailers will be registered on a two-tier system – retailers part of national and international chains, located in air-conditioned malls having debit and credit machines will pay tax at 17pc; chargeability of the sales tax at 5pc in case of monthly electricity bill up to Rs20,000 and at 7.5pc of the monthly electricity bill exceeding Rs20,000.
To restrict undue claims of input tax, the government has introduced electronic scrutiny and intimation system to conduct all checks and analysis objectively; further tax charged at 1pc on supplies made to unregistered persons is being specifically excluded from the purview of output tax.
The 10pc withholding tax is likely to be withdrawn on locally manufactured motor cars, Sports Utility Vehicles (SUVs) and other motor cars exceeding 1800cc; sales tax exemption to high efficiency irrigation equipment and greenhouse farming equipment; reduction in sales tax rate on local supply of tractors; exemption of sales tax import and supply of Cochlear Implants System; reduction in FED rate from 19.5pc to 18.5pc on telecommunication services; specific rates of sales tax on mobile phones; exclusion of FED on telecommunication services subject to provincial sales tax is being proposed.
The government introduced minimum tax at 0.5pc for oil marketing companies, oil refineries, SSGC/SNGPL for the cases where annual turnover exceeds Rs1 bn; PIA Corporation, poultry industry including poultry breeding, broiler production, egg production and poultry feed production.
A minimum tax rate of 0.2 pc will be for distributors of pharmaceutical products, fertilisers and cigarettes; petroleum agents and distributors; rice mills and dealers and flours mills; 0.25pc for motorcycle dealers and 1 pc for all other cases.
Customs duty measures: The maximum customs tariff is reduced to 25pc from 30 pc; the zero slab is replaced by 1pc customs duty; imposed regulatory duty on 60 items; customs duty on UPS reduced to 15 pc from 20 pc; on petroleum coke not-calcined reduced to1pc from 5 pc; exemption up to 50 pc granted on Hybrid Electric Vehicles (HEVs) up to 1800 cc and above 1800cc granted 25 pc.
The customs duty on networking equipment is raised from 5pc to 10pc; 10pc increase in the fixed rate of duty and taxes on used vehicles; customs duty increased to 10pc from 0pc and 5pc on flat-rolled products of alloy steel; 5pc duty imposed on import of generators above 1100 KVA; a uniform rate of 15pc customs duty is levied on dyes, except basic dyes and indigo blue dyes being used in the textile sector.
A uniform rate of 10pc customs duty on all kinds of CDs/DVDs; customs duty on flavouring powders enhanced from 10pc to 20pc to avoid misclassification. A uniform rate of 10pc is levied on liquid paraffin and white oil.
Customs duty on dryers is increased from 5pc to 10pc; a uniform rate of 15pc is levied on starches; customs duty on colouring matters is enhanced from 5pc to 10pc; customs duty on satellite mobile phones whether or not functional on cellular networks is reduced from 25pc to 10pc.
The collector of customs will collect the advance tax at the rate of 1pc on import of industrial undertaking importing remeltable steels directly reduced iron for its own use; persons importing potassic fertisers; persons importing urea; 2pc on persons importing pulses; 3pc on commercial importers of SRO1125; 4.5pc on ship-breakers on import of ships; 5.5pc on industrial undertakings; 5.5pc on companies and 6pc on other persons not covered in other schemes.
Published in Dawn, June 4th, 2014