ISLAMABAD, April 2: The government is likely to reduce the General Sales Tax (GST) rate from the existing 15 per cent to 12 per cent in the 2004-05 budget in order to widen the tax base.
Informed sources told Dawn here on Friday that two separate rates of the GST were likely to be enforced for 'necessary items' and 'non-necessary' items.
Necessary items like food would have a 5 per cent tax rate and for luxury items a maximum 12 per cent rate was being contemplated.
The sources said the ministries of industries and production, and privatisation and investment, were advocating a reduction in the GST rate so that tax coverage could adequately be enhanced.
A delegation of business leaders, who met CBR's new chairman Abdullah Yousef recently, had also reportedly called for reducing the GST rate from 15 per cent to 12 per cent.
The GST rate had been reduced from 15 per cent to 12.5 per cent during former prime minister Nawaz Sharif's second term. However, it was reverted to 15 per cent by the Musharraf government in 1999.
The sources said the government was also likely to fix 25 per cent corporate tax rate across the board, both for listed and non-listed companies, in the next budget.
The existing 35 per cent corporate tax for listed companies and 39 per cent for non-listed companies were considered still very high despite an approximately 2 per cent reduction in them annually over the last few years.
The government has also been advised to remove Rs45 billion worth of petroleum surcharge to considerably reduce petroleum prices as they were largely affecting all sections of society.
The sources said that another budget proposal was to reduce duty from the existing 10 per cent to 5 per cent on imports of plant and machinery, not manufactured locally. "The government cannot possibly have a zero-rated slab but it is being proposed to fix 5 per cent as the lowest slab," a source said.
Similarly, the budget planners were considering offering land on 10 per cent down payment at Export Processing Zone (EPZ) and Port Qasim Authority (PQA), Karachi, in order to lure local and foreign investors to set up industries there.
Major irritants, the sources said, related to Wapda, the KESC and CBR, which were currently obstructing local and foreign investment and that the cost of doing business in Pakistan was still very high compared to other countries of the region.
One of the major irritants, they said, was increased power charges about which the government had been receiving complaints but no adequate relief had so far been given to the investors.
"Now fresh proposals are being made to the higher authorities to considerably cut power tariff for industrial consumers in order to attract investment," a source said.
He regretted that Foreign Direct Investment (FDI) had declined from $600 million in the first seven months of 2002-03 to $360 million in the corresponding period of 2003-04.
He said the reduction in FDI was due in part to unsatisfactory law and order situation and because of high power and gas charges.
Sources said that both the ministries had regretted that the number of taxes, which had been reduced by the Sindh government from 16 to 4, had once again been unofficially reversed to 16.
"This entire exercise was on paper and the fact of the matter is that the investors are being harassed by various 16 provincial departments to have kickbacks for establishing a factory," another source said.
