ISLAMABAD: Senate Standing Committee on Finance finalised almost all of its recommendations with a notable change to slightly lower the tax rates for higher income-earning individuals here on Tuesday.

The committee, led by Senator Dr Farooq Naik of PPP, kicked off the discussions on tax measures proposed in the supplementary budget as announced by Finance Minister Asad Umar last week to minimise impact of the revenue relief given to certain sectors.

The recent amendments with respect to the non-filers being allowed to purchase and register vehicles and properties in the country was discussed at length during the meeting.

However, the issue was deferred till tomorrow after the Federal Board of Revenue (FBR) and Law Division were directed to find a way out while keeping in view whether federal government can intervene or make legislation on issues which fall in the jurisdiction of provinces.

Following a proposal by PML-N senator Haroon Akhtar Khan, the committee recommended to reduce higher slab for business individuals down to 25 per cent from proposed 29pc, whereas, in the case of salaried individuals, the rate was recommended to be brought down to 20pc from 25pc.

Cumbersome procedures discourage taxpayers from filing returns, says FBR official

The Senate Committee approved the recommendations despite opposition from State Minister for Revenue Hammad Azhar’s who argued that the revised slabs still give away maximum relief to higher individuals when compared with the previous year. He said that the FBR has only reclaimed one third from the total tax relief announced by the previous government.

Revenue minister explained that the new slabs were designed to encourage corporatisation in the country. However, opposition senators questioned the government’s move over the retrospective implementation of the revised slabs.

The committee asked FBR to take up the issue with Law Division to determine whether the new rates will be applicable for whole year — in retrospect — or for the remaining nine months of the current fiscal year to avoid legal litigation.

The committee took to task officials of commerce ministry for want of data and justifications for reduction in customs duty on import of 34 raw materials. Senators Haroon and Dr Musadiq Malik questioned the justification for giving away Rs4 billion in revenue without any justification.

Apparently, the officials substantiated their proposals by explaining the subsequent revenue impact. Despite providing no explanations during the tenure, PML-N senators were pressing on the government officials to share cost and benefit analysis of each tariff line.

On the recommendation of Chairman Committee, the issue was resolved through voting after officials failed to satisfy the senators. As a result, the committee rejected the proposal to reduce duty on raw materials.

But the revenue minister said that the government’s position is clear that the exemption on these raw materials was given to support export oriented industries, and industries catering to domestic needs to promote import substitution in the economy.

However, the committee unanimously approved proposal to enhance rates of federal excise duty on cigarettes. The senators agreed that government should discourage the illicit trade as well as encourage drop in consumption through tariff and non-tariff measures.

It was also agreed that the government should discourage cash transactions and support government’s measures to enhance withholding tax rate from 0.4pc to 0.6pc on banking instruments for non-filers.

The committee also approved the government’s proposal to increase federal excise duty on import of 1800cc and above vehicles to 20pc from the existing 10pc.

On the issue of documentation, FBR Policy Member Dr Muhammad Iqbal testified before the committee that most people in Pakistan are likely to avoid filing tax returns even if it yielded them monetary benefits. He said there are other reasons for non-filing which mostly relate to cumbersome procedures and fear of harassment from tax officials.

He said that even if the government announced a Rs1,000 as cash benefit for filing tax returns, it would not help widen the tax net.

The committee approved the indemnity to funds for dams from all taxes. Similarly, government decision to tax perks of ministers and governors also sailed through the committee.

Published in Dawn, September 26th, 2018