ISLAMABAD, March 20: Tax experts have suggested to the government-in-waiting to withdraw blanket tax exemptions including capital gains and hidden money whitening schemes in the budget 2008-09.

A number of other incentives have also been recommended which will have moderate impact on revenue but will generate employment, resolve energy crisis and promote exports.

Pakistan law associations -- tax lawyers and financial consultants -- in their budget proposals, a copy of which was released to the media here, suggested that capital gains should be taxed in case of resident persons also. However, taxation should be three staged.

They said where these securities are disposed of after holding period of less than one year, 75 per cent capital gains should be taxed at normal rate; where the gain arises on disposal of securities held for more than one year but less than 3 years, rate could be 15 per cent on the indexed capital gains; where these securities are disposed of after holding period of more than 3 years, indexed capital gains should be taxed at 10 per cent.

It has also been proposed that withholding tax and capital value tax (CVT) should be abolished on transactions of shares to enhance volume on the stock exchanges.

The associations also recommended that income of the stockbrokers should be taxed under the normal regime of taxation instead of presumptive taxation. At present, in case of corporate brokers, a part of their income is assessable at normal rates and the other under presumptive regime.

Given the present method of taxation, it is no surprise that a number of cases of illegal refunds by unscrupulous stock brokers, etc, in connivance of tax officials with the same bent of mind have surfaced.

The CVT on purchase of listed shares and stocks should be abolished to reduce transaction cost and thereby increase volume on the stock exchanges.

It has also been recommended that the CVT on immovable properties should be abolished and gains on these properties should be taxed by the provinces as per the Constitution of Pakistan; or alternatively, taxation of commercial and residential properties where the value is not recorded at the rate of Rs50 per square yard is not rational one. Per square yard rate should be lower for residential properties and higher for commercial properties to have CVT corresponding to their relative market value.

It is proposed that no tax should be levied on foreign remittances provided they are from explainable sources.

Exemption under clause 131 should be further extended to all services instead of present restricted exemptions to technical services, royalty, etc. However, section 111 should be amended to the effect that foreign remittance is not exempt from scrutiny as to its source.

This amendment becomes more important in the context of international developments for anti-money laundering measures and funding of terrorist organisations causing threat to the society.

The tax rate on corporate sector, other than banking and small companies, should be reduced to 30 per cent to make it competitive with other countries in the region.

Tax rate in the form of 21 slabs for salaried individuals has seriously hit in the middle-income group. Their effective tax rate has increased. It should be reduced to lessen the burden. In the absence of proper security net, it is proposed that disabled persons and widows should be given exemption from tax up to a certain limit, may be Rs500,000.