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Finance Bill 2013-14: The accountant’s budget

June 27, 2013
Tailored by accountants instead of economists, the budget gives little relief to the non-industrialist class or poor Pakistanis.
Tailored by accountants instead of economists, the budget gives little relief to the non-industrialist class or poor Pakistanis.

The National Assembly passed the Finance Bill 2013-14 on Thursday amid mild protest from the divided opposition parties. The PML-N’s first budget needs to be seen in the context of being industrialist-friendly, with little relief for the non-industrialist class or, to that extent, to poor Pakistanis.

Tailored by accountants instead of economists, the budget will have great impact on the citizens but carries dozens of incentives for the industrialists.

Finance Minister Ishaq Dar, who is a chartered accountant by profession, has tailored the budget proposals along with his fellow accountants in a very simple way to raise easy revenue from overburdened taxpayers for achieving an overambitious target.

And to keep the opposition away from discussing the harms of the budget, most of the time in the special budget session was consumed was on political issues – the national security plan, peace talks with Taliban, Gen (Retd) Musharraf to be tried for treason, etc.

Seven new withholding taxes

The government has projected a revenue collection target of Rs2,475 billion for the year 2013-14 against the downward revised target of Rs2007 billion for the current fiscal year. This increase will mostly be achieved by the new revenue measures, especially through the seven new withholding taxes introduced in the budget.

The focus of the amendments in tax laws does not reflect Mr Dar’s claim of bringing affluent people into the tax net and, therefore, look like political rhetoric.

One of the major changes includes increase of one per cent in the general sales tax rate to 17 per cent from 16 per cent, retrospectively to be effective from June 13, 2014.

The raising of tax rates – whether imposition of sales tax at retail level and the increase in the withholding taxes – will help the Federal Bureau of Revenue (FBR) achieve the target, but most of them will also have an adverse impact on consumers, as these are inflationary. The increase in the tax rates can also encourage corruption through fake and flying invoices, besides tax evasion, and may also reduce consumption. These two factors might actually bring down revenues, instead of raising them.

Higher tax rates may also discourage the documentation of economy. The taxation measures will increase the burden for some existing taxpaying sectors, while easing it for others. Meanwhile, the duty exemption on hybrid cars is more likely to benefit the elite, and has nothing to do with promotion of industrialisation.

The withholding tax rate on mobile phone users has been raised from 10 pc to 15pc. This will be adjustable against the final income of the taxpayers. This decision will have an impact on the 120 million mobile subscribers in Pakistan because the tax will be deducted at the time of easy load on mobile phones.

Similarly, tax on movable assets – cash amount in the banks and access to information –may cause capital flight from the country. And the maximum of 30 percent tax rate on gross salary income will also affect doctors, professors, and other professionals because there are no incentives for such high profile professionals who are contributing handsomely to tax collection. This decision of the government may cause brain drain from the country.

No mood to tax multinationals

On the other hand, the government was in no mood to tax the multinationals, whether in the dairy sector, banking sector or the IPPs.

No one is willing to carry out the audit of the multinationals because their clients – chartered accountants – are at the helm of policy-making and can easily protect the interest of their multinational clients. A tax official said an audit of any multinational company can easily raise billions of rupees for the government exchequer.

But to raise the tax return filing figures for public consumption, the finance minister very smartly made it mandatory for all salaried and non-salaried taxpayers to file tax returns and wealth statement from tax year 2013 irrespective of the income or value of the assets.

No exemption is available to taxpayers – salaried or non-salaried – under the law to evade filing of tax returns as exemption threshold for filing of returns has also been done away with. The exemption threshold of Rs400, 000 would be available for individuals only in terms of assessment of income tax, but filing of tax returns is mandatory for all across the board whether income tax is deducted or not in a tax year.

Earlier, employers’ statement of deduction of income from salary was accepted as tax return for salaried individuals with income up to Rs500, 000. This relaxation is no more for low-salaried people who would have to file tax returns along with wealth statements. The limit of Rs1 million or more (declared income or assessed for filing of wealth statement) has also been done away with now.

Certainly, the withdrawal of these exemptions will increase the overall number of return filers, but those will be junk emails because the government is still not willing to focus on the rich affluent people along with companies.

Only 800,000 people filed tax returns, including employer statements in tax year 2012, one of the lowest compliance levels in the country’s history.

In short, the budget carries an aggressive form of taxation for the masses living on the hard lines and not for those who possess wealth, especially the industrialists and real estate tycoons.