ISLAMABAD: The federal government has withdrawn only Rs75 billion worth of tax exemptions, Rs28 billion lower than what it announced while unveiling the budget earlier this month, shows an official document that forms the basis of taxation measures for the upcoming fiscal year.
In income tax, the government withdrew Rs15 billion worth of exemptions against the claim of taking back Rs36 billion in concessions for the next fiscal year 2014-15, beginning from July.
Similarly, against the claim of withdrawing Rs35 billion worth of sales tax exemptions, which were provided by issuing Statutory Regulatory Orders (SRO), the document depicted that only tax concessions of Rs27.7 billion were withdrawn.
Instead of fully withdrawing the concessions, in many cases the government ended up increasing the tax rates.
The scrapping of less-than-announced tax exemptions will have adverse implications for next year’s revenue target of Rs2.81 trillion, which the Federal Board of Revenue (FBR) already believes is over-ambitious – a view that it has conveyed to the top leadership in closed-door meetings.
The inability to do away with most of the exemptions highlights the growing influence of different lobbies that have been enjoying tax breaks for decades, according to tax experts.
In remarks made during a recent meeting of the Senate Standing Committee on Finance and Revenue, FBR Chairman Tariq Bajwa stated that the government had worked out the cost of tax exemptions at Rs477 billion. Of this, concessions of Rs240 billion could be taken back while the rest were socially-sensitive, he said.
According to Bajwa, about 40% of Rs240 billion worth of exemptions have been withdrawn from the new fiscal year while the remaining will be scrapped in two phases, from July 2015 to June 2017.
On the eve of the federal budget announcement, the government said out of Rs103 billion, customs duties had a share of Rs32 billion, sales tax Rs35 billion and income tax Rs36 billion.
Income tax: The government withdrew Rs15 billion worth of income tax exemptions. This included withholding tax exemption on payment to foreign news agencies that would yield Rs3 billion. Although it did not strictly fall in the category of exemption, the government took back withholding tax breaks available to large trading houses that would provide Rs6 billion in revenue.
Tax exemption available to Hamdard Laboratories was also done away with that would yield Rs1 billion. Tax exemptions for non-profit organisations were removed that would generate Rs5 billion next year.
Sales tax: Under the title “Review of exemption SROs”, the document showed that the government brought amendments to seven sales tax-related SROs that would give revenue of Rs27.7 billion.
Amendments to SRO 575, which deals with machinery and equipment, will yield Rs14 billion. Revisions in SRO 727, which also deals with import of machinery and plant, will yield Rs6 billion.
Changes in SRO 551 will generate Rs1.7 billion in tax revenue, amendments to SRO 501, which covers food items, will fetch Rs2 billion, changes in SRO 69, which deals with seeds, will give Rs2 billion and changes in SRO 1,125, which is concerned with imported garments, leather and carpets, will provide Rs2 billion in revenue next year.
Customs duties: The document showed that this was the only area where the amount showed and claimed was the same at Rs32 billion. By amending SRO 575, the government will receive revenue of Rs12 billion, Rs9 billion will be raised due to changes in SRO 567 and another Rs11 billion will come as a result of changes in SRO 565.
