ISLAMABAD: Despite the claim that it will widen the tax net, the government’s lack of political will to do so stood exposed when at a pre-budget meeting it dropped from the budget document a proposal to levy 1 per cent flat tax on assets.

A special committee of the Revenue Advisory Council headed by renowned economist Dr Hafeez Pasha had suggested that a minimum tax be imposed on assets instead of wealth tax, which was abolished in 2002.

Opposition parties, especially the PML-N, had demanded the re-imposition of wealth tax.

However, neither of the two was made part of the budget.

“I am shocked that our main proposal of minimum asset-based tax has been dropped” from the budget, Dr Pasha said.The 1 per cent tax was aimed at those who possess considerable assets but do not pay income tax at all.

Dr Pasha said the proposed levy would not be an additional burden on the existing taxpayers but would bring affluent people into the tax net.

FBR (Federal Board of Revenue) Chairman Salman Siddeque said the proposal had been dropped for legal reasons.

He explained that after the 18th Amendment assets and related areas had become a provincial subject and a tax on that could not be imposed by the federal government. He said the law ministry had been consulted on the issue.

Dr Pasha did not agree with the logic that the tax would have been unconstitutional. He said that currently a 10 per cent withholding tax was being collected by the federal government on rental income of property.

He explained that if income tax could be charged on the rental income, then 1 per cent flat tax could also be imposed as minimum tax on assets of wealthy people.

The proposed minimum tax has an inbuilt exemption limit of Rs10 million, which includes value of assets and cash an individual possesses, leaving only the real rich open to the proposed tax.

An income tax officer requesting anonymity said that Prime Minister Yousuf Raza Gilani could take provinces on board on the proposal if he was serious about this tax. If this tax was likely to violate the Constitution then the issue could be sorted out by parliament during the debate on the budget, he added.