ISLAMABAD: Finance Minister Ishaq Dar said on Wednesday that most of potential taxpayers in the country wanted to pay taxes but did not trust the taxation machinery.

It was against this background that the government introduced a new mechanism for collecting sales tax from 2.5 million retailers (fresh taxpayers) through their electricity bills like withholding tax, he told newsmen at his post-budget press briefing.

He conceded that about Rs945 billion worth of supplementary grants were being sought for approval through the next year’s budget, but said that most of these grants pertained to technical approvals and only Rs62.5bn were additional grants, including Rs44bn for increased debt-servicing.

The minister spent most of his time in denying that the budget was pro-rich and offered little to the poor, but did not answer repeated questions over continuing relaxation in capital gains tax to stock market investors and brokers and the impact of withdrawal of over Rs124bn subsidies on power tariff.

While asserting that his stance was pro-poor, Mr Dar even recalled steps for the poor the PML-N government had taken 15 years ago and also took credit for proposing the income support programme as finance minister of the PPP coalition five years ago. He said the coverage and the amount of the income support to poor families had been increased substantially.

The minister enumerated the measures he had introduced last year, including an increase in pension and salary of government employees and in the size of the Benazir Income Support Programme (BISP) which has now been renamed as National Income Support Programme (NISP) in the budget.

He hinted at merging the Baitul Maal and the federal segment of the devolved zakat responsibility because NISP allocation had been increased from Rs75bn last year to Rs118bn.

In a written statement, the minister said that apart from a 46 per cent hike in tax on airfare for club, business and first class travellers, the government had increased federal excise duty on international air travel of economy and economy plus passengers by 30pc to Rs5,000 from Rs3,840.

Mr Dar spoke in detail about his strategy to bring over 2.5m retailers in the tax net which he said had been put in place after prolonged negotiations with trader associations and other representative bodies.

He said big chain departmental stores and chain retailers having air-conditioned shopping malls with facilities for customers using credit or debit cards or with monthly electricity bills of Rs50,000 per month and above would be required to get registered for compulsory sales tax and to keep electronic cash register of approved specifications to record transactions and issue receipts to customers.

He said another category was of tier-II retailers who had agreed to pay sales tax through electricity bills because they said they wanted to pay taxes but were not ready to be in contact with the Federal Board of Revenue. “They are afraid of the taxmen and hence not ready to come into the tax net,” he said.

He said the government had studies to suggest that retailers had 60-90 times higher sales than their electricity bills which meant that a retailer consuming electricity worth Rs10,000 had at least Rs600,000 worth of sales. Through negotiations, it had been agreed that retailers having electricity bills of less than Rs20,000 per month would be charged 5pc of the electricity bill as sales tax, while those with higher bills shall be charged 7.5pc sales tax on retail sales.

Responding to a question, the minister confirmed that top bureaucrats wanted to increase their monetisation allowance from Rs100,000 per month even though they enjoyed a special preferential treatment as they were not paying normal income tax on this allowance as part of the gross salary like all other income taxpayers. But, he said, the proposal had been shot down.

He said the budget 2014-15 introduced Rs231bn of total taxes, including Rs103bn by withdrawal of tax exemptions through statutory regulatory orders and Rs128bn of fresh taxation measures. Of the new taxes, the minister mentioned the tax on sale of plots and tax on retailers.

He said tax measures introduced in the budget increased the share of direct taxes from 36pc to 37.5pc as new taxes were imposed on uncovered sectors, reduced distortions, plugged loopholes and increased the cost of doing business for non-compliant people who did not file tax returns.

He said there was no new tax on common food items and there was no increase in sales tax rate.

He said the government would set up Exim Bank of Pakistan to support exporters and offered the benefit of higher duty drawback on textile exports having higher value-addition.

Published in Dawn, June 5th, 2014