Budget outlay Rs1.17 trillion: Tax on real estate likely
By Our Staff Reporter
ISLAMABAD, June 5: The government presents before National Assembly on Monday covering an outlay of slightly over Rs1.17 trillion federal budget for the next fiscal year, about 30 per cent up from current year’s Rs903 billion. The federal cabinet to be presided over by Prime Minister Shaukat Aziz in the morning would give final touches to the budgetary proposals and approve it for presentation to parliament.
Minister of State for Finance Omar Ayub Khan will present the third budget of the present government with a revenue target of about Rs690 billion to be met through broadening of tax base by bringing into net real estate and other informal sectors of economy. The budget announcement will start at around 05.30pm.
A 7-15 per cent increase in pay and pensions, reduction in customs tariff, taxes on real estate, packages for textile industry and SMEs, concessions on import of irrigation and agriculture machinery and broadening of the tax base on informal sector would be the hallmark of next year’s budget. The results of tax survey conducted five years ago would be used for the first in the coming budget for broadening of tax base.
The public sector development programme (PSDP) will get Rs272 billion but total development budget will amount to Rs306 billion. The size of non-development budget is expected at about Rs900 billion against current year’s Rs701 billion, up by 29 per cent. Provinces are likely to get more than Rs270 billion from the federal government.
Interest payments and debt servicing cost has been estimated in the range of Rs320-325 billion compared to Rs307 billion of current year and defence expenditure has been estimated at Rs220 billion or 3.6 per cent of GDP. Budget deficit has been estimated at about Rs226-229 billion or 3.3-3.4 per cent of the GDP.
The GDP growth rate is being projected at seven per cent and inflation at eight per cent. Exports and imports are forecast to increase to $15.7 billion and $19.8 billion respectively, leaving a trade deficit of $4.2 billion.
Sources said the salaries of government officers (BPS-17 and above) are expected to be increased by 7-10 per cent. The salaries of other civil servants (below BPS-17) are likely to go up by about 15 per cent. However, this increase would be calculated after merging with salaries the two existing ad hoc allowances of 15 per cent each. Similarly, the pensions are also proposed to be increased by 10-15 per cent.
The pay and pension committee has recommended to do away with the medical allowance for the government employees across the board and replace it with a new health insurance scheme.
The house rent ceiling frozen on the 1994 level, would be revised according to the 2005 salaries. It has been proposed to completely do away pensions for new entrants into the government service with effect from next fiscal year.
The commutation of pension which is 35 per cent at present has been proposed to be reduced to 25 per cent with effect from next fiscal year and then gradually phased out in the next two years. However, 50 per cent of the pension emoluments would be made part of the monthly salaries for the new employees and rest of the 50 per cent would be given to them at the culmination of service in lump sum to contain continuous increase in government’s pension bill.
Precisely, the service benefits of the existing employees would remain unchanged but their salaries would be increased in the next budget while a new service structure would be available to the new entrants.
The sources said the non-banking financial institutions (NBFIs), recruiting agents, architects and property dealers have been proposed to be brought under the sales tax net but rate of income tax on NBFIs would be reduced.
The sale and purchase of property would be brought into the tax net by making national tax number (NTN) mandatory for all transactions. This would also effectively address some of the problems of ‘Benami’.
A major incentive package for textile industry would be introduced and some of the government functionaries are terming it “a textile budget”. The sales tax on whole of textile chain including ginning, weaving, spinning and manufacturing would be removed. However, a nominal three per cent sale tax would remain in place at the final stage of textile chain. The textile industry would also come under ‘no-duty-no-drawback’ scheme.
The duty on import of textile machinery has been proposed to be reduced to zero from five per cent while duty on spare parts would also be reduced from the existing rate of 15-25 per cent on different categories.
The duties on items which are causing smuggling would be reduced significantly while capital value tax (CVT) on trading of shares in the capital market would increase.
Similarly, duties on irrigation and agricultural machinery and equipment would be reduced. Duties on the import of 1800-cc cars and above would be reduced by about 50 per cent while local manufacturers would also be provided some relief.
A number of customs concessionary SRO would be clubbed together and central excise duty (CED) on good quality cigarettes would be increased.
The small and medium enterprises would be offered a new incentives while a number of amendments have been proposed in the income tax ordinance. The desk audit of income tax would be minimised and sales tax refund system would be allowed under the self-assessment scheme.
The overall customs tariff would be reduced on almost all the categories. A new federal excise law has been proposed to be implemented through the federal budget. The new budget would also contain tariff reforms and realignments of fiscal policies to reduce the cost of doing business. The raw material cost would also be reduced through tariff rationalisation and hassles would be minimised.
Some of the recommendations on major tax reforms, like reduction in income tax rates, strengthening of GST at the retail stage, extension of sales tax net to exempted services, introduction of a new 15 per cent customs duty slab, reduction of tax rates on banks from 41 to 38 per cent, documentation and tax number requirements on real estate deals and cash transactions in the banks would be finalised by the cabinet meeting early in the morning.
