With an increase of half a trillion rupees in the FBR revenue target, all the devils of this budget are in the finance bill. New revenue measures of almost Rs120bn have been announced. Another 12pc increase is expected from inflation and growth combined. The sales tax carries the bulk of this burden, followed by income tax and then the FED.
ISLAMABAD: In its fifth budget, the PML-N government has imposed around Rs120bn worth new taxes. The new finance bill contains a mix of revenue and relief measures — income tax, customs, sales tax and federal excise duty (FED) for all sectors of the economy.
The breakdown of the new tax measures shows an amount of Rs47.4bn worth income tax measures, Rs52.6bn of sales tax and FED and Rs20bn customs duty.
The relief measures announced are worth Rs32.5bn. Of them, Rs1.2bn relief was given in customs, Rs18.7bn in sales tax and FED and Rs12.6bn in income tax.
Tax measures revolve around four principles — strengthening the existing reforms, enhancing cost of business for non-filers, extending further relief to farm sector, and protection to local industry.
The government has extended the levy of super tax by one more year, impose 5pc withholding of the purchase value of tobacco by cigarettes manufacturers, the rate of minimum tax was enhanced to 1.25pc from 1pc, the rate of tax on dividend income was increased to 15pc from 12.5pc, and an increased rate of 12.5pc from 10pc on dividend received from mutual funds.
To raise easy money, the Federal Board of Revenue (FBR) has further enhanced the rates of withholding taxes for non-filers in various transactions — payments made to residents and non-resident persons for sales, services, contracts, payments for prize bond, lottery, sale by auction, Commission, discount to petrol pump operators, etc.
To raise easy money, the Federal Board of Revenue has further increased the rates of withholding taxes for non-filers in various transactions
On interest income, three new slabs were introduced — 10pc where mark-up does not exceed Rs5m, 12.5pc on mark-up income between the ranges of Rs5m up to Rs25m, while the rate will be 15pc on mark-up income exceeding the limit of Rs25m.
On stock market transactions, a flat single rate of 15pc for filers and 20pc for non-filers is introduced, and the advance withholding tax of 0.02pc on stock exchange brokers is being made final tax.
The government has withdrawn a tax credit of 3pc of tax liability available to all manufacturers who make 90pc of their sales to sales tax registered persons, the fixed tax regime on builders and developers has been reversed to normal tax regime, the commercial import of DAP fertiliser both by commercial as well as urea manufacturers will be brought under final tax regime.
The rate of withholding tax is enhanced to 1pc from 0.5pc on sales made by manufacturers, wholesaler, dealers and distributors of electronics goods to retailers, and extended the scope of the tax to batteries as well. The manufacturers and commercial importers will collect 0.1pc withholding tax on sale of batteries to dealers, distributors, and wholesales. Similarly, every distributor, dealer, wholesaler while making sales to retailers in respect of batteries are required to collect withholding tax at the rate of 0.5pc of the amount of sales.
The tax rate for corporate sector was reduced to 30pc from 31pc, withholding tax for mobile phone subscribers reduced from 14pc to 12.5pc, allowed three years exemption on profits of a start-ups in information technology, along with exemption from levy of minimum tax as well as withholding tax (as recipient) is also being accorded to such start-ups.
The government exempted 3pc advance tax on vehicles leased under Prime Minister’s Youth Loan Scheme, the quantitative limit for import of raw materials by industrial undertaking, without collection of income tax at the import stage, on the basis of exemption certificate issued by the Commissioner, is being enhanced from 110pc to 125pc of the quantity imported and consumed in the previous tax year.
The threshold for payment of advance tax on the basis of latest assessed taxable income is being enhanced from Rs500,000 to Rs1,000,000 for the threshold of taxable income for individuals entitled to a deductible allowance in respect of education expenses incurred, which is being increased from Rs1,000,000 taxable incomes to Rs1,500,000.
In order to provide respite to taxpayers having life insurance policies the threshold for collection of advance tax from such non-filers is being enhanced from Rs200,000 to aggregate amount of Rs300,000 per annum. In order to provide respite to individuals and associations of persons availing health insurance the lower limit of tax credit available to such persons, on a proportionate basis, is being increased from Rs100,000 to Rs150,000.
For filers of income tax returns, withholding tax on registration and transfer of motor vehicles having engine capacity up to 850cc, 851cc to 1000cc and 1001cc to 1300 cc is being reduced from existing Rs10,000, Rs20,000 and Rs30,000 to Rs7,500, Rs15,000 and Rs25,000, respectively.
The limit of interest free loans was enhanced to Rs1m from Rs0.5m to employees for availing tax exemption, the period of tax credit for enlisting on stock market was extended for another two years. However, the rate of tax credit was reduced to 10pc from 20pc payable for each of the subsequent two tax years.
The rate of 8pc minimum tax on services rendered by Pakistan Stock Exchange was reduced to 2pc; the fixed rate of Rs5,000 per Haji extended for the tax year 2017, income of registered political parties exempted from tax, three charitable organisations — Gulab Devi Chest Hospital, Pakistan Poverty Alleviation Fund and National Academy of Performing Arts — exempted from tax, taxpayers allowed to revise withholding tax statements within 60 days, and chief commissioner can allow a taxpayer to file return despite refusal by commissioner.
Tax measures revolve around four principles: strengthening the existing reforms, enhancing cost of business for non-filers, extending further relief to farm sector, and protection to local industry
The rates of withholding tax are being reduced to 2pc and 2.5pc, respectively, for companies and non-companies on fast-moving consumer goods, in order to protect the interest of small investors and to promote payment of dividends the condition regarding distribution of 50pc of paid-up capital is being removed, exempted accorded to branchless banking agents operating under the Asaan Mobile Account Scheme from withholding tax on cash withdrawals made for the purpose of making payments to their respective customers.
The concept of provisional assessment was done away with to facilitate taxpayers, in order to promote and incentivise Islamic banking, special provisions have been introduced whereby tax neutrality has been accorded in the case of Musharika financing by extending the benefit of depreciation on assets co-owned in the case of a Musharika arrangement.
The limit for expenditure incurred by pharmaceutical companies on sales promotion, advertisement and publicity was being enhanced from 5pc to 10pc of turnover.
The government has enhanced regulatory duties on 565 items mostly eatables in the range of 5pc to 15pc. This will generate alone around Rs10bn revenue for the government. The government convert flat rate of Rs250 per set into regulatory duty at the rate of Rs250 per set on mobile phones, 9pc regulatory duty on telecom equipment, regulatory duty increased to 25pc from 10pc on betel nuts, and Rs200 per kg levied on betel leaves, and concession in duty and taxes on hybrid electric vehicles above 2500cc withdrawn.
Exemption from customs duty extended on import of combined harvesters threshers up to five years old while 10pc and 20pc regulatory duty levied on five to 10 years and more than 10 years old, respectively, additional duty levied on cylinder head of motorcycles, and import of solar panels and related components were exempted from the condition of ‘local manufacturing’ till June 30, 2017 which is extended till June 30, 2018.
The customs duty was reduced to 3pc from 11pc and removal of 5pc regulatory duty on grandparent and parent stock of chicken, duty reduced to 3pc from 11pc on import of hatching eggs, reduced regulatory duty on aluminium waste or scrap from 10pc to 5pc, exempted 3pc regulatory duty on raw skins and hiders, 16pc on stamping foils, reduced duty to 11pc from 16pc on sheets for veneering rom, reduced duty to 3pc from 20pc on pre-fabricated modular clean rooms panels, exempt 3pc duty on import of ostriches and reduced duty on fabric (non-woven) for pharmaceutical industry from 16pc to 5pc.
To provide protection to local industry, 5pc regulatory duty levied on import of synthetic filament yarn (of polyesters), increased duty to 20pc from 11pc on aluminium beverage cans, reduced duty to 11pc from 20pc on uncoated polyester film and aluminium wire from 20pc to 11pc for manufacturers of metalised yarn, duty reduced from 20pc to 16pc and from 16pc to 11pc, on raw materials for manufacturers of baby diapers.
Similarly, customs duty at the rate of 5pc on bituminous coal and other similar coal. However, for the power projects in IPPs mode, customs duty on import of both types of coal reduced to 3pc, 20pc customs duty imposed on electric cigarettes, and 10pc regulatory duty on animal protein meals.
Government has proposed specific rates on various fertilizers. However, the rate on urea fertilizer will remain unchanged at 5pc ad valorem, rate of sales tax reduced on import of seven types of poultry machinery, combined harvesters and agricultural diesel engines exempted from sales tax, import of sunflower and canola hybrid seeds meant for sowing exempted from sales tax, import of multimedia projectors exempted for educational institutions, gifts and donations received from foreign governments and organizations exempted to the Federal and Provincial governments and public sector organizations.
The levy of 2pc sales tax withdrew on lubricating oils, reduction in sales tax at the rate of 50pc is available on import of Hybrid Electric Vehicles up to 1800cc and at the rate of 25pc on Hybrid Electric Vehicles exceeding 1800cc. It is proposed to maintain reduction in sales tax at the rate of 50pc on Hybrid Electric Vehicles having engine capacity up to 1800cc and restrict reduction at the rate of 25pc on engine capacity from 1801cc to 2500cc only. Similarly, reduction is proposed to be provided on local supply of the two categories of Hybrid Electric Vehicles.
Sales tax exempted on premixes to fight growth stunting, exemption provided on vehicles for construction and development of Gwadar Port and Gwadar Free Zone, exemtion on items for renewable sources of energy, and for conservation of energy, exemption on parts and components for manufacturing LED lights, sales tax withholding is proposed to be withdrawn on supplies from registered persons to other registered persons with the exception of advertisement services, reduced duty on telecommunication services from 18.5pc to 17pc.
Services which are subject to sales tax on the basis of turnover without input tax adjustment under Provincial Sales Tax Laws are proposed to be taxed in the similar manner. Exemption from sales tax is also proposed to be provided on export of IT services.
Mobile phones are chargeable to sales tax at the rates of Rs300, Rs1,000 and Rs1,500 per mobile phone set depending upon categories of mobile phones. It is proposed to merge sales tax rates of Rs 300 and Rs1,000 per set into Rs650 per set. Increase in Federal Excise Duty on cement Federal Excise Duty on cement is proposed to be enhanced from Rs1 per kg to Rs1.25 per kg. Enhancement of rates of Federal Excise Duty on cigarettes.
Steel sector is currently paying sales tax on the basis of consumption of electricity at the rate of Rs 9 per unit of electricity. The existing rate of Rs 9/unit of electricity is proposed to be enhanced to Rs10.5 and corresponding increase shall be made in ship breaking and other allied industry.
Retail sales of five export oriented sectors are chargeable to sales tax at the rate of 5pc which was enhanced to 6pc. It is proposed to levy 6pc sales tax on commercial import of fabrics. Minimum sales tax at the rate of Rs425 per metric tonne is proposed to be provided for locally produced coal.
It is proposed that the Federal Board of Revenue may assign jurisdiction to Chief Commissioners Inland Revenue who may further assign jurisdiction to Commissioners Inland Revenue under his administrative control. Notices sent to companies through electronic medium are proposed to be treated as proper service along with other prescribed modes.
Penalties are proposed to be imposed on persons manufacturing, possessing, transporting, distributing, storing, selling non-duty paid/counterfeit cigarettes.
Tier-1 retailers are under obligation to pay sales tax under normal regime. Alternatively, they have the option to pay sales tax rate of 2pc of turnover without any input tax adjustment. The said regime had been introduced under an SRO which has been struck down by the Lahore High Court. It is proposed to provide for payment of sales tax by tier-1 retailers through Sales Tax Act, 1990.
Published in Dawn, May 27th, 2017