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Pakistan: Budget Includes Steps for Widening Tax Net, Increasing Revenue
Source: brecorder.com
Source Date: Saturday, June 05, 2010
Focus: ICT for MDGs, Citizen Engagement
Country: Pakistan
Created: Jun 07, 2010

The government is set to announce IMF-dictated federal budget for 2010-11 today, according to which four new measures--enhancement of excise tax on a number of services (eg banking and insurance etc), increase in withholding tax on imports, increase in excise tax on cigarettes and introduction of capital value-tax (CVT) on real estate--will be taken to enhance revenue collection, sources in Finance Ministry told Business Recorder. A 5.3 magnitude earthquake in the federal capital on Friday passed by without a murmur, as people gathered in the streets to discuss the fallout of the budget's feared fiscal measures that would further erode the value of each rupee earned. These measures are expected to fuel inflation further up, which would hit the low-income groups, who are already in troubled waters.

The Finance Bill 2010-11 would reveal new taxation measures, including imposition of capital gains tax (CGT) on stock exchanges, reduction of capital value tax (CVT) from 4 percent to 2 percent on immovable property, increase in sales tax rate from 16 percent to 17 percent, reduction in withholding tax (WHT) on electricity bill of commercial/industrial consumers from 10 percent to 5 percent and enhancement in exemption limit from Rs 200,000 to Rs 300,000. Finance Bill 2010-11 would amend Income Tax Ordinance 2001 to introduce three categories of holding period for imposition of the CGT on stock exchanges. The government would levy 10 percent CGT on stocks, shares and securities with holding period less than 6 months; 6-12 months holding period 7.5 percent CGT and no CGT would be applicable on shares and securities having holding period of above 12 months.

Sources said that the government is likely to reduce withholding tax (WHT) on electricity bill received by commercial and industrial consumers from 10 to 5 percent to provide relief to the corporate sector in the coming budget for 2010-11. The government would reduce CVT on immovable property from 4 to 2 percent. This minimum amount would be levied across the board without any exemption on any size of immovable property. The CVT on immovable property would be used for documentation of property transactions instead of revenue generation measure.

It has also been proposed to provide substantial enhancement of exemption limit from Rs 2,00,000 to Rs 3,00,000 to provide relief to salaried persons in the coming budget. The proposal is to raise the basic exemption threshold for salaried individuals. Another major change in the slabs structure would be that overall number of slabs would be reduced to minimise tax burden on low income groups. It is expected that the dates for payment of advance tax on quarterly basis might be changed and a new simplified procedure would be issued in this regard. Finance Bill 2010 would introduce amendment in section 147 of the Income Tax Ordinance 2001 to revise payment of advance tax on quarterly basis. The government would take a number of budgetary measures on the sales tax and federal excise duty side for increasing revenue collection. It is expected that the assessable value of sugar for sales tax purpose may be declared as the market value and notified import value of sugar may be withdrawn.

Through amendments in the Sales Tax Act and Federal Excise Duty, sales tax and excise duty rates would be revised on certain items consumed by the rich. Other taxation measures would include a rise in existing rate of sales tax from 16 to 17 percent, 10 percent federal excise duty on air-conditioners/deep freezers and withdrawal of federal excise duty on POL products including lubricants/lubricating oils, solvent oil, mineral greases, base lube oil and transformer oil. One percent special excise at the import and local manufacturing stage would be withdrawn when 15 percent VAT would be enforced. Around 10 percent federal excise duty would be imposed on manufacturing and import of air conditioners and deep freezers. Federal excise is expected to be abolished on POL products including lubricants, grease, solvent oil and waste oil whereas, excise duty on cigarettes would be enhanced to generate additional revenue. The 100 percept adjustment of FED would be allowed to beverage concentrate. The rate of federal excise duty on natural gas would be increased to Rs 10/MMBTu to generate additional revenue of nearly Rs 6 billion in 2010-11.

On the customs side, focus would be on tariff rationalisation for reducing customs duty on some items, but revenue would be generated by checking smuggling and accurate valuation of imported goods. It is expected that the regulatory duty on a number of items would be abolished in the coming budget. Phasing out of exemptions to broaden the tax base and ensure horizontal equity in the tax system, broadening of tax base to include services sector and completion of tax administration reforms are also among the measures to be taken to enhance revenue as per the government commitment with the International Monetary Fund (IMF).

The measures, according to Finance Ministry sources, are estimated to increase tax revenue by 0.2 percent of GDP (at market prices) for 2010/11. With the introduction of these measures, federal tax collection is estimated to reach Rs 1.711 trillion in 2010-11, against a possible budgeted target of Rs 1.380 trillion; and a revised target of Rs 1.396 trillion during the current fiscal year. Based on these estimates, the tax-to-GDP ratio would increase to 10.3 percent in 2010-11, as compared to the budget target of 9.3 percent during the current fiscal year, sources said. With regard to petroleum levy and gas surcharge, sources said that consumption of petroleum products would gradually increase and that would result in increased revenue. During 2010-11, the government is expecting revenue of Rs 135 billion, against the possible budgeted target of Rs 134 billion, and a revised target of Rs 133 billion during the current fiscal year.
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