LAHORE, June 7: The changes in the tax regime proposed by the federal government in the Finance Bill for 2006-07 are meant more for enhancing revenue collection than encouraging business activity in the country.

“The proposed changes have virtually changed direct taxes into indirect taxes, indicating ad hocism prevalent in the government’s policies,” former Lahore Tax Bar Association (LTBA) president Shafqat Chohan said on Tuesday while commenting on the budget proposals for 2006-07.

“The proposed changes will benefit the affluent segments of society more than the poorer classes,” he said. For instance, he added, the five per cent tax on gross rent of property would allow the wealthier people reap the fruits of letting out their property, but would prove financially detrimental for the poorer sections of society.

Similarly, he said the increase in deduction of tax on bank withdrawals of Rs25,000 a day had changed income tax into an indirect tax and would encourage cash economy in the country. He said the ratio of indirect taxes was already very high vis-à-vis direct taxes, which retards business and economic activity rather than encouraging it.

Commenting on changes in sales tax, Mr Chohan said the proposed amendment to section 11(A) of the sales tax law allowed the CBR to attach property or cease bank accounts of anybody without any prior notice for advertently or inadvertently showing shortfall in his sales tax returns. “This is against the spirit of the constitution,” he said.

Moreover, he said, the changes suggested in section 8(A) of the sales tax law allowed the CBR to recover sales tax from a purchaser if his supplier/seller did not deposit the same. He said it was not only against the spirit of the constitution, but also defeated the very objective of levying sales tax.

Mr Chohan said the proposed changes also made the procedure of claiming sales tax refunds more cumbersome.