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Plan to introduce new taxes

January 25, 2013

state bank of pakistan, inflation, central bank
-File photo

ISLAMABAD: The government is considering introducing new taxes to raise Rs50 billion from next month to bridge the shortfall in revenue collection, it is learnt.

The top tax machinery has identified six areas for new taxation.

“We have identified areas for taxation and submitted to Finance Minister Dr Hafeez Shaikh for approval,” a senior tax official told Dawn on Thursday.

The FBR plans to raise Rs30 billion from new taxes under the head of sales tax and federal excise duty, Rs10bn from income tax and another Rs10bn from customs duties. The government has no other option but to levy new taxes ahead of the next elections, said a source.

Pakistan needs money because a significant amount of $2.9 billion would be repaid to the IMF during the current fiscal year 2012-13.

Pakistan has, so far, paid only $395 million in current fiscal year.

In March 2011 when the government faced revenue shortfall, it had withdrawn major exemptions on tractors, pesticides and fertilisers, plant, machinery and equipment and parts.

It had also increased special excise duty besides imposing 15pc special surcharge duty on incomes.

The new taxes would be raised from withdrawal of major tax exemptions, reduction in duties for various sectors through SROs and special procedures.

According to internal working of the FBR, 84 per cent of tariff and duty rates had either been exempted or reduced for the benefit of certain influential lobbies and elite in the country through SROs.

The FBR faced a massive shortfall in revenue collection during the first half of the current fiscal year and it had already communicated it to the IMF that revenue collection would witness a minimum of Rs181 billion shortfall by the end of June 2013.The proposed taxes include withdrawal of zero-rating of GST (Lesser duty or no duties) on domestic supply of five sectors-- textile, sports, carpet, surgical and leather goods.

The FBR is charging five per cent duty on sales of these products in domestic market as against the standard rate of 16 per cent.

The board estimates an annual revenue collection by withdrawal of zero-rating on these sectors to Rs36 billion. For five months, collections from these sectors would be Rs15 billion. Tax officials fear that powerful textile lobby may try to block the move.

It has also been proposed that rate of withholding tax be enhanced from 0.5 per cent to 1 per cent on supplies to exporters.

The FBR estimates to yield an amount of Rs3 billion from increase in the tax rate.

Similarly, FBR has also suggested introduction of a uniform rate of 3 per cent withholding tax on import of all goods, including edible oil, scrap etc.

Currently, 2 per cent withholding tax is imposed on import of edible oil and 1 per cent on scrap.

The upward revision of duty rate to 3 per cent from one and two per cent would yield an annual Rs15 billion revenue for the exchequer.

The FBR claims that increase in withholding tax rate would generate around Rs7 billion in five months of the current fiscal year.  However, five per cent withholding tax rate on commercial importers would continue as usual.

The FBR has also proposed further tax of three per cent on commercial importers to un-registered persons. This is believed to yield around Rs3 billion.

Moreover, there is a proposal to disallow input tax adjustment on un-registered sales.

It has also been proposed to raise upward the federal excise tariff on cigarettes, which would easily generate an additional Rs10 billion. Currently, tax rates in Pakistan are lower than international standards.

The tax official said FBR has also calculated to release a substantial amount under the alternate dispute resolution mechanism from the stuck amount of Rs256 billion in various courts.

“We have informed the finance minister about this,” the official said.

Apart from revenue measures, some administrative measures are also likely to be taken, the official claimed.

The FBR is pressing the government that they are unable to achieve the tax target because of these exemptions.

Contrary to this, the tax compliance level fell to 26.17pc in 2012 from previous year 47.3pc, which shows poor efficiency of tax officials.