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Budget envisages Rs246.255b new measures

Budget envisages Rs246.255b new measures

ISLAMABAD: The government has taken new taxation and administrative measures with the aim to fetch revenue to the tune of Rs246.255 billion in the fiscal year 2014-15 to be started from July 1.

According to the budget documents, these measures include an increase for advance tax rates for non-compliant taxpayers, imposition of 5 percent sales tax on 35 to 40 items including plant/machinery, regulatory duty on luxury goods, 1 to 2 percent adjustable advance tax on purchase of immovable property, 7.5 percent advance tax on domestic electricity consumers (with monthly bill above Rs100,000), abolition of income support levy on movable assets and reduction in maximum rate of duty from 30 to 25 percent.

As per details, the Federal Board of Revenue has proposed revenue generation measures for Rs231.255 billion and administrative measures of Rs15 billion. The FBR has taken relief measures of Rs12.040 billion. Out of Rs231.255 billion new taxation measures, direct taxes measures of Rs149.200 billion have been taken in the new budget. Sales tax and federal excise duty measures totalled Rs47.700 billion. The taxation measures of customs duty totalled Rs34.356 billion.

The relief measures taken on the customs duty side totalled Rs1.740 billion; sales tax Rs2 billion and relief measures pertaining to income tax stood at Rs8.3 billion for 2014-15. The increase in rates of advance tax for non-compliant taxpayers will generate Rs14 billion. The government will generate Rs3 billion from 7.5 percent advance tax on domestic electricity consumers having monthly bill above Rs100,000.

To penalise un-documented persons, the government has imposed an advance adjustable income tax, in addition to the tax collectable from return filers, be collected from persons who do not file income tax returns on certain transactions at rate of 5 percent for dividend income, 5 percent for interest income above Rs500,000, 0.2 percent for cash withdrawals from banks and 0.5 percent in case of advance capital gain tax collected from seller of immovable property.

Through Finance Bill (2014-15), the government has imposed 17 percent standard rate of sales tax on rapeseed, sunflower seed and canola seed, 5 percent sales tax on oilseed for sowing, and raw and ginned cotton, withdraw 10 percent Federal Excise Duty (FED) on locally manufactured motor vehicles exceeding 1800cc and sales tax exemption to high efficiency irrigation equipment and greenhouse farming equipment.

The government has reduced corporate tax rate from 34 to 33 percent for Tax Year 2015, causing revenue loss of Rs7.7 billion. To attract, Foreign Direct Investment, generate employment and attract inflow of foreign exchange in Pakistan, the corporate tax rate is to be reduced to 20% if the investment is in a new industrial undertaking to be set up by 30.06.2017 and at least 50% of the project cost including working capital is through FDI as equity.

The rate of capital gains tax was to increase from 10% to 17.5% with effect from July 1, 2014. In order to avoid a sharp increase in rate which might negatively affect markets, the rates have been rationalised, and the CGT rates are proposed to be 12.5% for securities held up to 12 months and 10% for securities held for a period which is between 12 to 24 months.

To document and bring into tax net the real estate transactions, it is proposed that an adjustable advance tax be collected on purchase of immovable property at the rate of 1% tax for complaint taxpayers and 2 percent for non-compliant persons. The measure is expected to generate Rs10 billion. However, property with value less than Rs3 million and schemes introduced by the government for expatriate Pakistanis will be excluded.

Similarly, the government will not charge 19.5 percent federal excise duty on telecom services in provinces, which are charging 19.5 percent sales tax on such services. The Sindh, Punjab and KP will charge 19.5 percent sales tax on telecom services whereas FBR will not charge 19.5 percent federal excise duty on these services to avoid double taxation. The FBR has reduced FED on telecom services from 19.5 to 18.5 percent for Islamabad and Balochistan province. Beside, the government has announced reduction in rate of tax withheld on cellphone charges reduced from 15 percent to 14 percent.

The government has imposed regulatory duty on luxury goods like cosmetics, chocolates, food preparations and prepared food stuff, beverages, mechanical and electrical appliances to generate Rs500 million.

The FBR will generate Rs2.5 billion from cement sector as Federal Excise Duty on the cement sector is being replaced from specific basis (Rs400 per MT) to 5 percent on retail price. The FBR has replaced capacity tax on aerated waters with normal tax regime i.e 9 percent FED and 17 percent sales tax. The international air travel would be subjected to fixed FED at Rs5,000 for economy & economy plus class and Rs10,000 for club, business and first class. The local supply of ginned cotton will remain exempt from sales tax. The measure would generate Rs3 billion.

Sales tax concession has been withdrawn on certain kinds of machinery imported by nine sectors generating additional revenue of Rs14 billion. The items are machinery, equipment and other items required for setting up, up-gradation and expansion of hotels (3 stars and above), tourism; sporting and other recreation services related projects as approved by the Ministry of Tourism; machinery, equipment and other capital goods for service sectors; machinery, equipment and capital goods imported for establishing wholesale/retail chain stores; air handling units; items imported by the manufacturing sector; heat ventilation air-conditioner; machinery and equipment relating to broadcasting; machinery and equipment imported by surgical industry; machinery and equipment imported by cutlery industry.

Dispute huge number of bonus shares issued, the amount of tax paid on account of capital gains on bonus shares is very small. In order to discourage tax avoidance in this area, it is proposed that bonus shares be treated as dividend and taxe deducted at the rate of 5% the ex-bonus price of the shares.

Through Finance Bill (2014-15), Income Support Levy Act was promulgated through the Finance Act, 2013. The aim is to provide resources for the economically distressed persons. However, this measure has caused some concerns among public. It is therefore proposed to repeal the Income Support Levy Act, 2013.

There are certain distortions and inequities in the tax system and in such cases tax structure, rather than economic incentives, favour choice of one sector or manner of conducting business over the other. To remove such distortions in mutual fund industry it is proposed that Mutual Fund distribute dividend in cash only and that the rate of tax applicable to the dividend distributed by Mutual Fund be same as is applicable to class of income received by Mutual Fund. However, to encourage Mutual Funds the rate of tax on dividend distributed by Mutual Fund to companies in respect of interest income shall be 25% instead of 33% applicable to companies.

To discourage perpetual declaration of losses or very low income using tax avoidance means by companies, an alternate corporate tax at 17% is proposed to be imposed on accounting income excluding the exempt income. The companies shall have to pay ACT or corporate tax whichever is higher. In order to facilitate companies that have genuinely low income for some period of time, the ACT paid is proposed to be carried forward up to 10 years, Finance Bill (2014-15) added.