The government has fixed highly ambitious tax collection target of Rs 2,810 billion for FBR in the budget 2014-15 against a revised estimates of Rs 2,275 billion in the outgoing fiscal year ending on June 30, 2014. FBR will require a growth of over 25 per cent in coming fiscal year in order to achieve the desired target.
The government has given five major areas for finalizing its tax proposals which are currently under consideration in shape of Finance Bill 2014-15 by the elected Parliament. In a welcoming move, the government has reduced maximum tariff regime from 30 per cent to 25 per cent in the budget as rationalization of tariff would help curb smuggling and increase revenues in years ahead. On the other hand, the government has imposed regulatory duty on luxury items such as chocolate, mineral water, cosmetics and few other items in order to discourage their imports.
The focus of this year’s tax proposals is on increasing the direct taxes share by 2/3rd of total revenue proposals. These proposals are mostly income tax based, removing inequities in tax structure, encouraging compliance and increasing the cost of doing business for non-compliant, removing distortions and discrimination by eliminating exemptions and concessions and promoting FDI and industrialization.
The government has withdrawn different SROs as well as abolished exemptions in a bid to broaden the narrowed tax base. After inability of the tax machinery to expand its tax base in last two decades, the FBR has taken conscious decision to increase its reliance on withholding mode which is considered as easy way of collecting taxes. Through withholding mode, the government has increased cost of doing business for persons who have preferred to remain outside the tax net and given incentive to those who are NTN holders and regular return filers.
Through different measures for increasing cost of doing business in Pakistan for non compliant, the government has imposed adjustable advance tax with higher rates for non-compliant persons on First/Club class international air tickets at 6 per cent and for compliant taxpayer at 3 per cent.
The government has also slapped adjustable advance tax on purchase of immovable property at rate of 2 per cent for non filers and 1 per cent for filers, extra 5 per cent adjustable Advance Income Tax on interest income (over Rs500,000) and dividend income for non-compliant, adjustable advance tax on purchase/registration of new private vehicles; rate for non-compliant double of the compliant and adjustable advance tax on high end domestic electricity consumers at 7.5 per cent for electricity bill over Rs100,000.
In shape of withdrawal of exemptions, the government has abolished tax exemption on bonus shares. A study of FBR reveals that total transaction on bonus shares stood at Rs1500 billion during the outgoing fiscal year and with imposition of 5 per cent tax the collection could go up by Rs75 billion. FBR had estimated that its collection through 5 per cent tax on bonus share could collect Rs 15-20 billion in the coming fiscal year. The government has slapped adjustable withholding tax on plots, purchase of plots and increasing FED on cigarettes in the budget.
On relief side, the government has granted exemption from customs duty and sales tax on import and supply of high efficiency irrigation equipment and greenhouse farming equipment for agriculture sector; reduced rate of sales tax on local supply of tractors from 16 to 10 per cent; reduced rate of FED on telecommunication services from 19.5 to 18.5 per cent and withdrawal of FED from provinces where the GST on telecom services has been levied; reduced withholding tax on telecom services from 15 to 14 per cent and encouraging Foreign Direct Investment by reducing the corporate tax for foreign investment from 33 to 20 per cent for five years.
