LAHORE: Promotion of tax exemptions culture continues to date despite the commitments of the present government on the contrary policy.
The result of the study carried out by the government to review implications of the statutory regulatory orders (SROs) issued by the previous governments has revealed that yearly tax exemptions amounted to Rs 478 billion.
More and more meetings are being held to rationalise or remove concessions from the budget for 2014-15. However, the government itself is treading the path converse to its manifest goal of achieving sustainable growth.
In the area of customs duty collection, preferential trade agreements signed with other countries in the recent past have rendered substantial revenue losses due to absence of proper negotiations i.e. keeping the country’s economic interests on priority.
For instance, SRO issued for the implementation of a preferential trade agreement with Indonesia is expected to cause a loss of Rs 3.5 billion to the national exchequer. Whereas, the present government has issued eight SROs for customs duty exemption.
Customs duty exemptions were granted through SRO687(I)/2013 (procedural changes); SRO742(I)2013 (regulatory duty imposed on sport utility vehicles); SRO939(I)/2013 and SRO940(I)/2013 (reduced customs duty for new entrants in motorcycles manufacturing industry); SRO1 073(I)/2013 (amendment in existing SAFTA).
The government has issued 24 SROs for granting income tax exemption. Seven of them directly involve tax exemption of millions of rupees. Income tax exemptions are made through SRO669(I)/2013 (amendment in second schedule of income tax); SRO739(I)/2013, SRO772(I)/2013, SRO799(I)/2013 and SRO828(I)/2013 (Different tax returns); SRO900(I)2013 (rate of income tax reduced for goods transport); SRO904(I)/2013 (rules for collection of income support levy); SRO978(I)/2013 (exemption from filing of wealth statement); SRO980(I)/2013 (rate of tax for passenger transport vehicles); SRO1040(I)/2013 (immunity from audit for tax year 2013); SRO1035(I)/2013 (rules for banking companies reporting); SRO1065(I)2013 (incentives for industrial undertaking); SRO1064(I)/2013 (rate of duty reduced for goods transport) and SRO17(I)/2014 (partial exemption on fee paid to educational institutions).
SROs to grant sales tax exemption are made through SRO648 (I)/2013, (change of mode of collection to production capacity basis from aerated water); SRO649 (I) 2013); SRO682 (I)2013 (reducing of sales tax from 17 per cent to 5 per cent on finished products of textile and leather products); SRO740(I)/2013 (reduction of tax rates on touch mobile phones); and SRO897(I)2013 (sales tax rate reduced from 17 per cent to 1 per cent in cases of purchases made from unregistered persons).
SRO1072 was issued to charge federal excise duty at the rate of 0.5 per cent as against the applicable rate of 8 per cent on local sale of sugar to benefit a handful of political families which owned sugar mills. The concession is in addition to Rs 12-Rs 20 billion sales tax exemption.
It cannot be possible to avoid fiscal deficit, improve tax to GDP ratio and issue tax exemptions at the same time. Therefore, the government needs to understand that if it is liable for a sustainable growth it must act prudently.
