ISLAMABAD: Finance Minister Ishaq Dar is all set to present the second budget by the Pakistan Muslim League-Nawaz government in the National Assembly on Tuesday.

The finance bill, which will be tabled in parliament next week, is expected to include Rs535 billion in additional taxes and other administrative measures.

The ambitious new tax measures revolve around three pillars — documenting and taxing the rich, raising the existing withholding tax rates for non-compliant taxpayers, and increasing the income tax share in overall revenue collection.

Officials privy to the budget-making process say these proposals are aimed at offering industrialists a better environment through the lowering of customs duties. But this will not provide any relief to salaried individuals or the common man.

A well-placed source in the Finance Ministry told Dawn: “The Federal Board of Revenue has obtained approval from the prime minister for the new taxes.”

The government has projected an ambitious revenue collection target of Rs2,810bn for FY2014-15. But tax officials say this target is too high and predict that FBR may be able to collect not more than Rs2,700bn.

SALES TAX: Any change in the sales tax rates will directly affect the weaker sections of society and have an impact on inflation. Prime Minister Nawaz Sharif has agreed in principle to bring down the existing rate to single digit and has also approved the constitution of a commission to explore this possibility.

At present only four per cent of the total sales tax collected reaches the government, with fake receipts accounting for the bulk of the losses.

Mr Sharif has agreed to bring down sales tax to five-seven per cent and to do away with input adjustments and refunds.

A tax official said: “The reduction in sales tax rate will bring political mileage for the PML-N government,” adding that this might not go down well with the International Monetary Fund.

The government is also expected to make receipts mandatory for all transactions. Tax authorities are considering offering incentives such as a lottery scheme to encourage people to obtain receipts at shops, restaurants, etc.

While no exemptions will be withdrawn from kitchen items, stationery, pharmaceuticals and dairy products, the steel sector may see the sales tax rate climbing up to Rs7 per unit from Rs4 per unit.

A proposal is under consideration to levy over 5pc sales tax on export proceeds, which will be charged from foreign buyers.

The government appears reluctant to give the salaried class tax concessions despite the fact that in the previous year, most wealth statements were filed by salaried individuals.

Experts suggest a 15pc to 20pc income tax concession for those earning more than Rs35,000 per month, while for those earning around Rs1.2 million per month the concession may be around 10pc.

WITHHOLDING TAX: To differentiate between taxpayers and non-taxpayers, the government has decided to increase the cost of doing business for non-taxpayers by increasing withholding tax across the board.

All existing withholding tax rates will be increased by 1.5pc to 2pc for non-taxpayers. Those who are on the tax rolls and file their returns will pay the existing withholding tax rates.

For example, on cash withdrawal from banks, the withholding rate will be increased from 0.3pc to 0.5pc. Those who have NTNs and file returns will pay a lower rate. Similarly, there will be an increase in the withholding tax on interest and dividend. “We will provide all NTN and returns data to banks,” the official said.

Filers who travel abroad often will be subject to an adjustable 5pc withholding tax, while the rate for non-filers will be 10pc. The taxes will be applied only on first-class and business-class tickets.

Gas and electricity connections will also be linked to NTNs. Each transaction, whether for business or non-business purposes, will only be allowed through cross cheque and the penalties for issuing bogus cheques will be enhanced.

The FBR has no proposal to withdraw income tax exemptions on perks and privileges of judges of the superior judiciary, the president of Pakistan and services chiefs, among others.

There are several SROs which cannot be withdrawn because of their expected impact on the end-consumer. For example, the withdrawal of a sales tax exemption on crude oil will fetch Rs94 billion in revenue but it will lead to an increase in the price of oil.

There are several proposals on the cards, including the levy of regulatory duties on luxury items. The government may also increase taxes on the import of used cars.

Published in Dawn, June 1st, 2014