ISLAMABAD: It was on the insistence of a federal minister that the cabinet, in a last-minute change, reduced the heavy taxes on the rich proposed in the original budget documents, sources told Dawn on Wednesday.

The minister, who heads a non-economic ministry, had initially opposed the proposals of taxing the rich during a cabinet meeting.

But after finding himself alone, he suggested that the exemption threshold be raised in a manner that would leave out most people from the tax net.

A source privy to the cabinet meeting told Dawn that the Federal Board of Revenue (FBR) has proposed one per cent advance income tax on purchase of immovable property with a registration value of over Rs2 million, and not on the market value which runs into millions.

But the minister proposed an exemption limit of up to Rs50m, which was contested by tax officials and finally the rate of exemption was agreed on Rs3m.

However, Finance Minister Ishaq Dar has approved, and supported the value of Rs2m before the cabinet meeting.

The levy will be applicable on district collector rates etc, which are very low in the four provinces for registration of property.

According to the source, provinces have been urged to raise the value to bring it closer to the market value so as to get substantial revenue from the real estate sector.

The FBR estimates the levy on purchase of property has the potential to generate revenue of Rs10 billion in 2014-15. So the lower the ceiling for exemption, the higher the revenue collection.

The second proposal was about collection of advance tax from high-end consumers of electricity at a rate of 7.5 per cent on domestic consumers of more than Rs100,000 a month.

Originally, the tax authorities had proposed that people who consume electricity worth Rs50,000 or more should pay the tax. But on resistance from the cabinet member, the limit was raised two-fold to exclude a large number of rich consumers from the tax net.

The levy is now expected to raise just Rs3bn for the government.

The government has given Rs12 billion in tax concessions to businessmen and industrialists. Of this, Rs8.3bn was doled out to the wealthy in the shape of income tax relief. The relief in sales tax amounted to Rs2bn while that in customs duties totalled Rs1.7 billion.

According to the source, over Rs7 billion relief was given to the corporate sector, which is mostly non-compliant. A total of 23,000 companies have filed returns this year. Of these over 10,000 companies have shown zero income in the tax year 2013.

The reduction in advance tax on functions and gatherings amounts to Rs600m while a cut in the rate of sales tax on tractors will cost the government an amount of Rs1.5bn. This concession will mainly benefit the feudal class.

Published in Dawn, June 5th, 2014