ISLAMABAD, June 7: The government has increased withholding tax by 0.25 per cent to 0.75 per cent on export proceeds of five major sectors, reduced rate of withholding tax on two items and introduced new slabs for taxing the income of salaried class.

Through the finance bill 2005, government proposed to charge 0.75 per cent withholding tax as against the current 0.5 per cent on export proceeds of textile fabrics and article of apparel — ready made garments/fashion wear, articles of leather/foot wear — carpets, surgical goods and sports goods.

It has also been proposed to levy 1 per cent income tax on the turnover of retail outlets of these sectors.

The government has proposed four new slabs for taxing the income of the salaried class: where taxable income exceeds Rs100,000 but does not exceed Rs200,000, the rate of income tax would be 3.5 per cent of the amount exceeding Rs100,000; where taxable income exceeds Rs200,000 but does not exceed Rs400,000, the rate would be Rs3,500 plus 12 per cent of the amount exceeding Rs200,000; where taxable income exceeds Rs400,000 but does not exceed Rs700,000, the rate would be Rs27,500 plus 25 per cent of the amount exceeding Rs400,000 and where taxable income exceeds Rs700,000, the rate would be Rs102,500 plus 30 per cent of the amount exceeding Rs700,000. While the basic threshold of taxable income would remain at Rs100,000.

To reduce the withholding tax rate in the case of import of synthetic, woollen and silk fabrics and their raw materials to one per cent, it has been proposed that the reduced rate of one per cent be withdrawn in the case of raw hides and skins; a uniform rate of six per cent proposed for all contracts.

Through the bill a new corporate rate of 20 per cent has been introduced for small companies. At the same time, small companies may be exempted from the obligation to act as a withholding agent as well. Furthermore, exemption has been proposed from payment of minimum tax.

A small company would mean a newly constituted private limited company, which has not been formed by the reconstitution of a company already in existence and has a paid up capital plus undistributed reserves not exceeding Rs25 million and turnover of Rs200 million. It has been proposed that tax reduction at the rate of one per cent be allowed on enlistments of companies on stock exchanges up to June 30, 2006.

Through the bill the benefit of group company relief has been extended to service sector as well; the concession of amalgamation be extended also to companies owning and managing an industrial undertaking.

Donations paid to certain specified welfare institutions, have been declared as exempt from income tax. However, these donations are subject to monetary limit.

It has been proposed that all such benefits to the employees might be exempted, where the marginal cost to the employer was zero (notional cost).

In order to avoid misuse, this concession has been proposed to be restricted only to transporters including airlines, hotels, educational institutions, hospitals and such organizations as may be prescribed.

Accordingly, it has been proposed that a one-time waiver from the levy of additional tax might be allowed to telecom companies only on the amount of withholding tax actually not collected but is now paid.

It was proposed that income from any type of services rendered abroad may also be subjected to a concessional treatment by charging a tax at the rate of one per cent on the gross receipts provided such receipts are brought into Pakistan through normal banking channels.

The maximum value of passenger transport vehicle (not plying for hire) for depreciation allowance is restricted to Rs1 million and it has been proposed that the maximum limit be removed. The corporatized entities of Wapda may be allowed tax exemption retrospectively up to the date of formal commercialization. Above 1000cc car owner would file return and filing period has been reduced from four years to two years in case once tax was paid by the taxpayer.

It has been proposed that standard rate of 10 per cent withholding tax may be applied to all telephone subscribers. A basic exemption limit of Rs1000 per month may, however, be provided in the case of post-paid bills including those of mobile phones.