TAX officials have formulated draft taxation proposals for federal budget 2013-14 targeting an increase of Rs461 billion in additional revenue. The target has been raised to Rs2,651 billion from the revised estimate of Rs2,190 billion for the current fiscal year, up 21 per cent.
The package developed by the Federal Board of Revenue includes new indirect and direct taxes together with administrative measures to plug loopholes.
The finalisation of the optimistic taxation proposals were in line with the direction set by the finance ministry which circulated a budget calendar to all ministries and divisions, asking them to submit their revised estimates for the current fiscal (2012-13), latest by January 16, along with budget estimates for 2013-14 together with reasons for variations. In a letter, the principal accounting officers of federal institutions and ministries were asked to submit their indicative budgets for the next three years until 2015-16 latest by February 8. The ministries and divisions had also been asked to submit their final estimates by March 15.
Sources said the budget calendar is being largely observed. A senior tax official, who was a part of the tax exercise, said that FBR had finalised draft budgetary proposals and shared them with the finance ministry and the IMF.
New measures to collect about Rs100 billion have been proposed and the government has identified new areas for taxation. The new taxation proposals includes withdrawal of tax exemptions given through SROs and special procedures. At present, 84 per cent of tariffs and duty rates are either exempted or reduced to benefit certain lobbies.
The proposals include withdrawal of exemptions on domestic sales in five sectors — textile, sports, carpet, surgical and leather goods; enhancement of withholding tax rate from 0.5 to one per cent on supplies to exporters; introduction of uniform rate of three per cent on withholding tax on import of all goods, including edible oil and scrap.
The FBR has proposed further tax of three per cent on commercial importers to unregistered persons; disallowing input tax adjustment on unregistered sales and raising federal excise tariff on cigarettes. A range of other tax proposals were also under consideration.
An amount of Rs44 billion is expected to be raised through administrative measures by plugging loopholes in the taxation system.
The size of the GDP 2013-14 is projected to edge up to Rs26,710 billion from Rs23,000 in the current fiscal year. As a result of this increase in the GDP size, the tax-to-GDP ratio for the next year has been projected at 9.9 per cent.
According to the initial estimates of the finance ministry, inflation rate has been projected to grow at nine per cent in 2013-14 and economy at 5.5 per cent.
Coupled with administrative measures, inflation and GDP growth will help FBR raise an additional Rs317.6 billion to meet the new target in case the revised target of Rs2190 billion for the current fiscal year is met. This means that the huge chunk of growth in revenue will come next year without much effort from tax officials.
Tax officials also see tax amnesty schemes as a part of the next year budget. They say that there is no resistance from the major opposition party PML (N). The only party which is opposing the tax amnesty scheme is the MQM, but tax officials have already approached them informally to seek their support for the schemes.
The tax amnesty schemes are also expected to raise additional revenue of Rs90 billion.
Similarly, tax officials have proposed amendments in the budget for the existing alternate dispute resolution laws making it the first choice of taxpayers for resolving their tax disputes. On this count, more than Rs256 billion of revenue is stuck in court cases. The amendments will also be introduced in the next budget.
No doubt all these measures will help FBR to produce quite a good number in terms of revenue collection, but the tax system will still be facing the twin problems of low tax compliance and greater reliance on indirect taxes.