LAHORE: The government is likely to increase sales tax on 5 sectors and capital gain tax on shares while phasing out of SROs and tax amnesty schemes is also on the cards, sources disclosed.
The sources said that the Federal Board of Revenue may increase rate of sales tax on five export-oriented sectors – textile, leather, carpets, surgical and sports goods — in budget (2014-15). Sales tax rate of industrial input has been proposed to be raised from 2 percent and 3 percent to 5 percent. The sales tax rates of finished products are proposed to be increased from 5 to 17 percent.
They added that the government is expected to withdraw tax exemptions granted through SROs to the tune of around Rs 104 billion as committed to the International Monetary Fund under the $6.64 billion Extended Fund Facility.
Similarly, according to sources, the Capital Gain Tax rate on shares sold within one year may be 12.5%. The rate of CGT on shares sold after one year but within two years could be 10%. The government is expected increase the holding period from six months to one year for charging taxes on short term holdings and from one year to two years for long term holding period.
The sources also stated that federal government has proposed to end the Tax Amnesty Scheme in upcoming budget FY14-15 due to which the investors would be exposed to the questioning of FBR regarding their investments.
On the other hand, experts are of the view that withdrawal of tax exemptions through Statutory Regulatory Orders (SROs), increase in tax rates and revenue measures are projected to generate an additional Rs 235 billion in 2014-15 to meet the estimated Rs 2,810 billion tax collections next fiscal year.
They said that the main concern for investors of local bourse is the increase in Capital Gain Tax (CGT). The government earlier highlighted that CGT could increase to 17.5% for the sale of securities within 6 months.
However there could be the revision in CGT and it could increase but remain in the range of 12.5%-15%, they said, adding that this would result in likely dilution of investor sentiments and would cause some downturn in market and lower volumes as witnessed in last couple of weeks.
It is unlikely that government will give the extension for Tax amnesty scheme. This could bring the negative sentiment in the market.
Reacting on sales tax, they said that any likely increase in Sales TAX would have a neutral impact as it is a pass on item but would slightly make the export oriented segments uncompetitive in international markets.
