ISLAMABAD: The second budget of the PTI government aims to reduce the input cost of industries and that of personal protection equipment for frontline healthcare workers, but there is nothing in the tax plan that explains how they intend to meet the Rs1,055 billion hike in the Federal Board of Revenue (FBR) target.
Top tax officials would only tell Dawn that the purpose of the revenue changes announced in the finance bill is to give away Rs45bn in tax relief to industries and individuals. Of these, Rs25bn was given in reduced duty rates and abolishing of two per cent additional customs duty on industrial raw materials and semi-finished products.
Under the income tax and sales tax, FBR estimates revenue relief of Rs20bn. Of these Rs7bn is because of abolishing nine withholding taxes and Rs13bn due to a reduction in the rate of withholding tax rate on cement.
Background talks with officials in the finance division and FBR suggest the government has other plans to cover the expected shortfall in revenue collection.
One official source told Dawn that Finance Adviser Dr Abdul Hafeez Shaikh has informed the cabinet that shortfalls in the FBR revenue will be met through gains from four non-revenue measures — petroleum development levy, profits of the State Bank of Pakistan, privatisation of at least three state-owned enterprises and further expenditure cuts.
The same person also said the government is confident that the International Monetary Fund will revise the FBR revenue target after the review. Even in the current fiscal year, the IMF revised the target two times in the pre-COVID-19 period.
Another key source tells Dawn that the FBR is expecting to post a shortfall in the range of Rs400-500bn in 2020-21 due in significant measure to partial lockdowns that may continue for the first two quarters.
Speaking to Dawn, a senior tax official did not rule out the possibility of a mini-budget in case the economy revived.
The FBR also estimates maximum revenue this year from the construction sector and hopes to activate over Rs555bn worth of revenue measures that it took in the last budget but did not see through to full implementation.
It further expects to see the impact of Rs200-Rs250bn income tax revenue measures this year. “We are expecting the impact of these revenue measures this year,” the official said.
At the same time, the revival of imports will also help the FBR generate additional revenue this year. Normally, it collects almost 50pc of total taxes on the import stage.
The minimum threshold of supplies by retailers for obtaining CNIC of the buyers is enhanced to Rs100,000 from Rs50,000. Meanwhile, the exemption on sales tax for health-related items was extended for another three months and was exempted on import of dietetic foods.
To encourage documentation, the sales tax rate was slashed to 12pc, from 14pc for organised retail sector integrated online with the FBR through Point of Sale system.
The government has also introduced the concept of active and non-active taxpayers’ for sales tax and FED.
The policies related to mobile manufacturing, tax concessions and exemptions to Gawadar Port and Gwadar Free Zone were made part of the Finance Bill 2020.
Under the Alternative Dispute Resolution Committee, the taxpayer is allowed to withdraw his case from any court of law or any appellate authority after the ADRC’s decision, which once conveyed by the taxpayer to the authorities, is binding.
The FBR is empowered to fix minimum production on the basis of single or more inputs and for fixation of wastage. It will also have access to databases of various entities such as National Database and Regulatory Authority, Federal Investigation Agency, provincial excise and taxation departments etc.
The government has done away with nine withholding tax provisions which include; advance tax on education-related expenses; steel melters and composite units; withdrawal of balance under a pension fund; tax on local purchase of cooking oil or vegetable ghee; advance tax on functions and gatherings; cable operators and other electronic media; advance tax on dealers, commission agents and arhatis etc; and advance tax on insurance premium and tobacco.
To rationalise withholding tax regime, it has been decided to reduce withholding tax from 5pc to 2pc on raw materials and 1pc on capital goods.
The rate of withholding tax will be 5.5pc on finished goods irrespective of the status of importers. However, the prevailing concessional rates on certain items such as remeltable scrap of iron and steel, potassic and urea fertilisers, LNG, gold, cotton, goods that were importable by manufacturers, mobile phones, etc under various SROs are being maintained.
The threshold was raised to Rs100 million, from Rs50m for becoming the prescribed person for withholding of tax supplies, services contracts. In the case of sales tax, it was set at Rs100m to be a withholding agent.
In case of immovable property sold by auction, the rate of withholding tax was lowered to 5pc, from 10pc and to provide a level-playing field for the permanent establishment of non-residents viz-a-viz resident taxpayers, it was reduced to 3pc, from 8pc on account of payment for certain services.
The government has also done away with the concept of the bifurcation of plots and constructed property for determining the holding period of capital gains. The holding period for taxation of capital gains on disposal of immovable property is being restricted to four years. In addition, rates are also being reduced on capital gains emanating from the disposal of immoveable property.
Moreover, it has increased the thresholds for expenditures to be incurred through cash — without a bank — for declaring in returns. Under the first head, it was raised from Rs10,000 to Rs25,000, which can now be made without banks. In the single source payment, the threshold was enhanced to Rs250,000, from Rs50,000.
Similarly, the threshold for expenditure was increased to Rs25,000 per month, from Rs15,000 which again can be made without banks.
The withholding tax exempted on cash withdrawal to the extent of foreign remittances. The property expenses of all individuals and associations of persons were allowed for adjustability. To promote investment in government debt instruments through a foreign bank account, a non-resident rupee account repatriable or an international currency account was allowed.
The government also plans to establish a centralised Income Tax Refunds and Hajj operators are exempted from withholding tax on payments to non-residents. Meanwhile, the advance tax was exempted on vehicles up to 200cc and that on auction immovable property is to be collected in installments and issue exemption certificates to public listed companies within 15 days. Collection of advance tax by educational institutions will not apply to persons on the active taxpayers’ list.
Key non-revenue measures unveiled were enabling e-audit, streamlining alternate dispute resolution mechanisms, strengthening compliance of non-profit organisations. The government extended the concessions to Gwadar Port and Gwadar Free Zone, construction industry, and relief measures provided through SROs during Covid-19.
The duty reductions in customs are a major relief for industries, for some ordinary people and to discourage smuggle-prone items.
The additional 2pc customs duty was abolished on more than 1,600 tariff lines, which include more than 20,000 items and constitute 20pc of the total non-agriculture tariff lines. The items comprise chemical, leather, textile, rubber, and fertilisers.
The second major relief to the industrial sector is reducing the slab of 11pc on 90 tariff lines to 3pc or zero. These include raw materials and semi-finished products. Furthermore, the government reduced customs duty on 200 tariff lines from 20pc, 16pc, and 11pc to lower rates.
Similarly, regulatory duty on hot-rolled coils of iron and steel has been reduced from 12.5pc and 17.5pc to 6pc and 11pc, respectively and also brought down for smuggled-prone items under 136 tariff lines such as cloth, sanitary ware, electrodes, blankets, and padlocks to bring them under the legal import regime.
The relief was given in duty exemption on import of raw materials to manufacturers of Nashiran-e-Quran, Butyl Acetate, syringes and saline infusion sets, buttons, interlining/buckram, Wire rod, beverage can manufacturers, the food packaging industry and exemption of custom duties and regulatory duty on import of machinery, equipment and other project-related items for setting up of internet cable landing stations.
Among relief measures given to common people was the exemption on import of 61 items related to Covid-19 extended further, from its initial expiry on June 20. The exemption of 2pc additional customs duty on import of edible oil and oilseeds has also been stretched.
The government exempted import of dietetic foods for children with inherited metabolic disorders, inputs of ready-to-use supplementary foods (RUSF), exempted all duties and taxes on import of diagnostic kits for cancer and coronavirus and life-saving drug Meglumine Antimonite for treatment of leishmaniasis.
Moreover, customs duty exemption on imports for setting up new industries in erstwhile Federally Administered Tribal Areas was extended to 2023 while the levy of regulatory duty on import of 18 tariff lines which are locally manufactured was increased.
At the same time, the government reduced additional customs duty on Palm Stearin to incentivise the soap manufacturing industry and the scope of concessions available to Special Economic Zones was further enhanced. The concept of the advance ruling was introduced in customs and the government has given minimum penalty powers to customs officers for taking action against people involved in smuggling.
Federal Excise Duty
Federal excise duty on cigars, cheroots, and cigarillos and cigarettes has been raised to 100pc of the retail price, from 65pc while that on filter rods increased to Re1 per filter unit, from Rs0.75.
The government imposed a levy of FED on e-liquids of electric cigarettes at Rs10 per ml while another 25pc will be applicable on caffeinated energy drinks.
A 7.5pc FED ad valorem is imposed on locally manufactured double cabin (4x4) pick-up vehicles and 25pc in the case of imported ones.
On the other hand, it has been cut to Rs1.75 per kg of cement, from Rs2. The FBR is empowered to fix minimum production on the basis of single or more inputs and for fixation of wastage; the scope of seizure of non-duty paid goods is extended to all products subject to FED besides cigarettes and beverages.
Published in Dawn, June 13th, 2020