ISLAMABAD: Sparing the affluent class any new income tax, the government has continued with its earlier strategy of indirect taxation by focusing on the general sales tax and the federal excise duty to raise more than Rs140 billion.
The budget proposes to collect Rs31.3 billion from new general sales tax (GST) and Federal Excise Duty (FED) taxes.
Of these Rs10 billion will be raised from imposing sales tax on army owned general stores, Rs9 billion from the revised duty on cigarettes, Rs7 billion from GST on 15 new items and Rs1 billion from revision of sales tax rate from four per cent to five per cent on local sales of five zero rated sectors.
At the same time, the government has extended the GST measures initiated in March for a period of four months to the next year. It will yield an additional Rs101 billion.
Of these alone the GST on fertilizer will yield Rs35 billion, pesticides Rs2 billion, tractors Rs7 billion, plant and machinery Rs26 billion. A sum of Rs30 billion will be collected from five zero rated sector domestic sales and Rs1 billion from sugar.
But contrary to this, tax officials said that the relief measures taken under GST/FED regime would yield a net revenue loss of Rs52.4 billion.
This includes Rs35 billion revenue loss owing to downward revision of GST rate from 17pc to 16pc, Rs6 billion because of abolishing of 2.5 per cent special excise duty and Rs12 billion because of reduction in FED on cement and complete FED withdrawal on white cement. FED on cement will be withdrawn completely in two years.
Tax officials said that the net revenue impact from the tax measures taken in the budget would be negative. However, they said that FBR would raise Rs50 billion from administrative measures next year that would offset the revenue loss.
But the March taxation measures, continued to the next year, would yield a revenue of over Rs100 billion. This revenue along with the administrative measure would help the FBR to reach easily the revenue target of Rs1,952 billion for next year. This also shows the concentration on revenue collection from GST in the budget.
Contrary to these GST measures, government has proposed to raise basic income tax exemption limit to Rs350,000 from Rs300,000 per annum to give relief to lower salaried people. This will give a relief to around 80,000 taxpayers. Those with monthly salary below Rs29,629 will not pay income tax. However, they will have to file tax returns.
Against this, government has facilitated wealthy people more by increasing the limit of filing wealth tax statement to Rs1 million from existing Rs0.5 million. And it has scrapped the proposal to re-introduced wealth tax for them.
The rate of withholding tax on cash withdrawal from bank is to be reduced to 0.2 per cent from existing 0.3 per cent. All these measures are proposed to cause a loss of Rs3.8 billion income tax.
The government has imposed 16 per cent GST on 15 new items. These include computer software, surgical tapes, ultrasound gel, diapers for adults (patients), bricks, building blocks of cement including ready mix concrete blocks, ambulances, fire fighting vehicles, waste disposal trucks, breakdown lorries, special purposes vehicles for the maintenance of streetlights and overhead cables.
The GST is to be imposed on aircraft, ships of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose, spare parts and equipment for aircraft and ships, equipment and machinery for pilotage, salvage or towage for use in ports or airports, equipment and machinery for air navigation, equipment and machinery used for services provided for handling of ships or aircraft in a customs port or airport and import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition.
The GST rate has been enhanced to three per cent from two per cent on commercial importers at import stage to yield additional revenue of Rs3 billion, eight per cent FED on sugar imposed replacing GST, rationalised FED on filter rod of cigarettes from Re1 per rod to 20pc ad val and FED enhanced to Rs10 per kg from existing Rs5 per kg on un-manufactured tobacco.
However, government has withdrawn FED on 15 items ranges in the range of five to 16 per cent. These include solvent oil (non-composite), other fuel oils, mineral greases, transformer oil, other mineral oil excluding sewing machine oil, waste oil, carbon black oil (carbon black feedstock) including residue carbon oil, methyl tertiary butyl ether (MBTE), greases, viscose-staple fibre.
Moreover, government has reduced FED on aerated beverages from 12 per cent to six per cent, withdrawn FED on services provided by property developers or promoters, exempted local supply of reclaimed lead to recognised manufacturers of lead batteries and allowed full adjustment of sales tax paid on import or local purchase of capital goods.
The government has withdrawn regulatory duty on 397 luxury items, excluding five items, leading to a revenue loss of Rs2.2 billion. The five items that will be subject to the regulatory duty are betel nuts, luxury vehicles of 1,800cc and above, arms and ammunition, cigarettes and luxury tyres and bathroom sets.
It has reduced customs duty by five per cent on raw material used in pharmaceutical products, cut duty to zero per cent from five and 15pc on import of 15 components used in CNG compressors, reduced duty to five per cent from 20 per cent on sabutol used in butyl acetate industry, slashed duty to 10pc from 20pc on mirror backing paint and from 10pc to 5pc on waste-scrap of glass.
Customs duty concession has been announced for oil exploration companies, raw materials of audio cassettes, and incentive for hi-tech car audio manufacturing, tariff rationalisation on bars, rods and profiles of refined cooper and copper alloy.
A fee collection has been proposed for goods imported under the Afghan transit trade agreement.
Under the income tax, the government has also proposed to withdraw capping of Rs0.5 million from voluntary pension fund and tax holiday for five years for 100pc equity investments to be effective from July 1, 2011.
To encourage investment in shares, the maximum cumulative limit for investment has been fixed at 10pc instead of 15pc of the taxable income with upper limit for investment at Rs0.5 million.
To encourage listing of companies on stock exchange, the existing tax credit has been enhanced to 10pc from five pc and the rate of tax on asset management companies’ dividends raised to 20pc from 10pc.
To encourage non-residents’ investment in securities the withholding tax of 10 per cent is proposed to be a final taxation. The government has also withdrawn 0.01pc CVT on modaraba certificates and instruments of redeemable capital traded at stock exchange.