ISLAMABAD: The coalition government’s first budget — and probably the last one before the next general election as stated by the finance minister a day earlier — on Friday avoided taking unpopular tax measures for fear of political backlash and pinned its hopes on achieving the 16.6 per cent higher target for the next fiscal on 5pc GDP growth and 11.5pc inflation.
The government has also tapped transactions and high income yields from the real estate sector and banking sector profits. There is somehow also some relief given to the salaried class and a few industries like textile and pharmaceutical sectors.
As per proposed plan, under the revenue relief changes announced in the Finance Bill, the government aims to give away Rs85 billion to industries and individuals. Of these, Rs6bn has been given in customs duty, Rs30bn in sales tax and federal excise duty (FED) while Rs49bn in income tax.
The revenue measures under income tax will generate Rs316bn, followed by Rs90bn from sales tax and federal excise duty and Rs34bn from customs duty. The net revenue impact will be Rs355bn after deduction of relief measures.
Official documents suggest that real GDP growth at the rate of 3pc in the financial year 2022-23 (FY23) will help generate Rs121bn, while nominal inflation at 12.8pc will yield additional Rs403bn. The Federal Board of Revenue (FBR) aims to collect additional revenue of Rs524bn through enforcement these measures.
The cumulative impact of all these measures will be Rs879bn to reach the target of Rs7 trillion for FY23.
The finance bill proposes a tax of 5pc on a deemed income of non-productive immovable property. There will be an exemption of one plot, besides deduction of Rs25m from other open plot. The FBR estimates tax collection of Rs30bn from this tax alone. Similarly, the rate of capital gains tax has been increased on immovable property by raising the threshold of exemption from four to six years.
The revenue collection from capital gains tax is estimated at Rs40bn.
Advance tax has been increased form 1pc to 2pc on purchase and sale of immovable property by active taxpayers, and from 2pc to 5pc in case of non-active taxpayers. The FBR estimates to raise accumulative revenue of Rs65bn.
The FBR plans to raise Rs10bn by levying 1pc capital value tax (CVT) on liquid foreign assets of Pakistanis, another Rs8bn from 1pc CVT on foreign immovable properties of Pakistani residents and another Rs10bn from an increase in advance income tax on luxury vehicles above 1600cc.
A 2pc poverty alleviation tax has been imposed on high earnings of individuals and businesses having income of Rs300m or more. The FBR will get Rs38bn under this head.
The windfall gain tax on banking companies has been increased from 39pc to 42pc, which will generate an additional amount of Rs28bn. The FBR has increased tax rates on low advance-to-deposit ratio of banks on income attributable to all instruments of investment, including T-bills. This will generate an additional Rs25bn. The FBR will raise Rs10bn income tax from private-funded gratuity and pension schemes. Tax rate on commercial imports of raw materials has been increased to 4pc from 2pc to generate Rs17bn.
The Finance Bill introduces fixed tax of Rs3000 to Rs10,000 for small retailers, and Rs50,000 for special class — car dealers, precious watches, etc — which will be collected through electricity bills of Rs30,000, Rs50,000 and Rs100,000 per month. It will be a full and final tax liability. The FBR estimates to collect Rs30bn from this tax.
The FBR has imposed 1pc advance tax on foreign transactions through debit, credit or prepaid card for filers and 2pc for non-filers. A reduced rate of 0.25pc has been imposed on IT exports.
For the salaried class, minimal taxable income has been raised to Rs1.2m from Rs0.6m. The number of salary slabs has been reduced to seven from 12 and maximum rates to 32.5pc from 35pc. There will be a Rs47bn relief for salaried individuals.
The minimum tax bracket has been raised from Rs0.4m to Rs0.6m for small businessmen and women which will cost Rs2bn to the national kitty. In 2018, the PML had introduced a similar taxation, but it was later reversed by the PTI government.
Taxable profits limit on saving certificates, pensioner benefit and martyrs’ family welfare account investments has been reduced from 10pc to 5pc.
The government offers a five-year tax holiday to film-makers, besides tax rebate for five years to new cinemas, production houses and film museums and 10 years for film and drama export, exemption on cinemas and producers’ income, withholding tax to film producers and distributors and zero sales tax and customs duty on import of film equipment.
The industry and business depreciation cost has been changed from 50pc to 100pc for first year and withholding tax collected at import stage has been made adjustable across the board on import of raw materials. The limit of passenger transport vehicle enhanced to Rs5m from Rs2.5m.
The government has reduced sales tax rate from 16pc to 15pc in the federal capital. All types of seeds, solar panels, tractors, imports and local supply of charitable hospitals, UN diplomats and privileged persons, power generation project machinery and temporary imports have been exempted from sales tax.
The government has imposed 3pc sales tax on compressor scrap, motor scrap and copper cutting scrap. The FBR estimates to raise an additional amount of Rs9bn.
The government has reduced tariff structure on 10 tariff lines of dyes and 39 tariff lines of packaging industry and exempted agriculture machinery and agro-based industrial machinery from customs duty.
A 10pc regulatory duty has been imposed on import of motor spirit, which will yield Rs30bn. Brush-ware industry and guts/bladders have been exempted from all taxes.
Reduction/concession in duty has been given on imports by vendors of the automotive sector, coating industry, manufacture of filters, the pharmaceutical sector, flavouring powders, membrane for filtering/purifying water, Ivy leaves extract powders, MDF/HDF boards and raw material for first aid bandages.
The government has reduced duty on raw materials for industries — plywood, veneered panels, foot wear industry, LED light/parts.
An 11pc customs duty and 2pc advanced customs duty has been imposed on import of synthetic filament yarn, monofilament and staple fibers of polypropylene. Regulatory duty exemption has been withdrawn on high carbon wire rod. Regulatory duty rate on optic-fibre cables has been increased from 10pc to 20pc.
FED rate has been increased for two slabs of cigarettes, which is expected to raise Rs10bn in revenue. FED rate has been increased from Rs10,000 to Rs50,000 on club, business and first-class travel by air and on telecommunication services to 19.5pc from 16pc. FED on air travel will raise Rs3bn while only Rs1bn come from telecommunication services.
Published in Dawn, June 11th, 2022