ISLAMABAD:
The Nawaz Sharif government has slapped additional tax measures to
generate Rs231 billion in the budget 2014-15 through withdrawal of
Statutory Regulatory Orders (SROs), tax exemptions and enhancing the tax
burden on different sectors of the economy.
Almost 2/3rd or 66 percent revenue measures taken in the budget are related to direct taxes.In order to achieve a highly challenging tax collection target of Rs2,381 billion in 2014-15 against the revised estimates of Rs2,275 billion for the outgoing fiscal, the government requires a growth of over 25 percent in the next year for achieving its set tax targets.
Of the total revenue measures of Rs231 billion, the FBR will fetch Rs103 billion through the withdrawal of SROs and removal of tax exemptions in all the three major taxes. The tax machinery has estimated that it will collect Rs32 billion through withdrawal of SRO/exemptions from the Customs Duty, Rs35 billion in Sales Tax and Rs36 billion in Income Tax side.
Other revenue measures will fetch Rs128 billion as increasing the tax rates through income tax will yield additional revenues of Rs108 billion, Sales Tax Rs16 billion and Customs Duty Rs4 billion. In major revenue measures, the government has brought retailers, air tickets for Club and first class travelers, plots transactions and registration of cars into the tax net. The tax rate for tobacco has also been enhanced.
The government has introduced two tier systems for bringing retailers into the tax net. In the first tier, those retailers will be brought under the normal regime by imposing 17 percent GST who are operating under the command of national/multinational chains, in air-conditioned malls, having debit/credit cards and consuming electricity in excess of Rs50,000 per month.
The government has imposed 5 percent GST on those retailers who are paying electricity bill up to Rs20,000 and 7.5 percent GST on those who are paying bills exceeding Rs20,000 per month.The government has imposed advance tax in adjustable mode on air tickets for travelers of first class/Club Class as 3 percent tax rate is proposed for registered persons and 6 percent for non-registered persons.
The government has also slapped adjustable advance tax on purchase of immoveable property with 1 percent for registered persons and 2 percent for unregistered persons into tax system. For domestic electricity consumers, it is proposed to collect adjustable advance tax at the rate of 7.5% on the monthly bill of above Rs100,000.
The government has slapped an extra 5 percent adjustable advance income tax on interest income (over Rs500,000) and dividend income for non-compliant.The government has proposed adjustable advance tax on purchase/registration of new private vehicles; the rate for non-compliant is double of the compliant.
By removing the tax exemptions, the government has proposed in the Finance Bill 2014-15 discontinuation of reduced rates of tax deducted from advertising agencies, which has now been enhanced from 5 percent to 10 percent.
The government has slapped withholding tax on payment to foreign news agencies from earlier 0% to 20% in the budget.The government has removed tax exemption enjoyed by large trading houses to withhold tax from their suppliers, withdrew tax exemption to commercial income of Hamdard laboratories, rationalising the exemption of mutual funds by making it mandatory to distribute profits in cash as dividends, withdrawn exemption to bonus shares and their taxation at the rate of 5% in the budget.
The sales tax (ST) on steel melters/re-rollers has been increased from Rs4 to Rs7 per unit of electricity, ST payable by ship-breakers increased from Rs5,862/MT to Rs6,700/MT and rate of tax on import of re-meltable scrap increased from Rs1,600/MT or 5% (whichever is higher) to Rs5,600/MT.
By removing the SROs, the government has withdrawn SRO 549/2008 for zero rating on crude oil, etc. The government has withdrawn the SRO 551/2008 for general exemptions.Through withdrawal of SRO 727/2011, the government has imposed reduced tax rate of 5 percent on machinery.
Through the removal of SRO 501/2013, the government has removed exemption on dairy and stationary, etc.Replacement of capacity tax on aerated waters has led to excessive litigation and the Lahore High Court has passed an order against the scheme. Therefore, the existing scheme shall be reverted to the normal tax regime.
The Federal Excise Duty on the cement sector is being replaced from specific basis (Rs400 per MT) to 5% on retail price. It will be enforced through the Finance Bill, 2014, effective from 01.07.2014.
The government has imposed 5 percent regulatory duty on luxury items in order to discourage imports. The general tariff slabs were reduced from 8 to 6, minimum slab of zero has been replaced with 1 percent while socially sensitive items will be maintained at zero percent such as oil, tomatoes, onions, pulses, beans, fertilisers, etc.
To minimise chances of mis-declarations, delays due to lab tests and to eliminate discretions, customs duties on items proposed has been rationalised, which include alloy steel, generators above 110 kvs, dyes, CDs, UPS and convertors, flavouring powder, liquid paraffin, dryers and networking equipment. The government has also rationalised the duty on hybrid vehicles and upward revision by 10% of fixed amount duty and taxes on used vehicles. Treating the tax withheld from sports persons at the rate of 10% as final tax has been announced in the budget.
Tax relief measures in the budget 2014-15: To encourage industrialisation and to promote fruit processing in Gilgit-Baltistan, Balochistan and Malakand Division, exemption of customs duty and sales tax on import of plant, machinery and equipment.
For industrialisation in Fata, plant, machinery and equipment for industries in Fata, exemption has been granted from customs duty and sales tax. In order to reduce the input cost for industries, customs duty on PET coke as an alternative fuel to coal to be reduced from 5% to 1%.
The government has exempted from customs duty and sales tax import and supply of high efficiency irrigation equipment and greenhouse farming equipment for agriculture sector. The government has reduced the rate of sales tax on local supply of tractors from 16% to 10%.
The government has reduced the rate of FED on telecommunication services from 19.5% to 18.5% and has withdrawn FED from the provinces where the GST on telecom services has been levied. The rate of the withholding tax on telecom services has been reduced from 15% to 14%.
To encourage Foreign Direct Investment, the corporate tax for foreign investment has been reduced from 33% to 20% for five years in the budget.
Instead of imposing normal tax rate on gains through stock market share, the government has imposed 12.5% for holding period up to 12 months, 10% for holding period of more than 12 months and up to 24 months. The rate of corporate tax has been reduced from 35 percent to 34 percent. The tax burden on the disabled persons has been reduced by 50 percent.
The government has repealed the Income Support Levy Act, 2013. The taxation of joint venture in which one member is a company - Company is to be taxed separately from the AOP in its corporate capacity, reduction of advance tax on functions/gathering from 10% to 5%, exemption from Income Tax to Sindh Pension Fund and income tax relief provided to airline pilots. The government has reduced initial depreciation allowance on buildings from 25% to 10%.
Almost 2/3rd or 66 percent revenue measures taken in the budget are related to direct taxes.In order to achieve a highly challenging tax collection target of Rs2,381 billion in 2014-15 against the revised estimates of Rs2,275 billion for the outgoing fiscal, the government requires a growth of over 25 percent in the next year for achieving its set tax targets.
Of the total revenue measures of Rs231 billion, the FBR will fetch Rs103 billion through the withdrawal of SROs and removal of tax exemptions in all the three major taxes. The tax machinery has estimated that it will collect Rs32 billion through withdrawal of SRO/exemptions from the Customs Duty, Rs35 billion in Sales Tax and Rs36 billion in Income Tax side.
Other revenue measures will fetch Rs128 billion as increasing the tax rates through income tax will yield additional revenues of Rs108 billion, Sales Tax Rs16 billion and Customs Duty Rs4 billion. In major revenue measures, the government has brought retailers, air tickets for Club and first class travelers, plots transactions and registration of cars into the tax net. The tax rate for tobacco has also been enhanced.
The government has introduced two tier systems for bringing retailers into the tax net. In the first tier, those retailers will be brought under the normal regime by imposing 17 percent GST who are operating under the command of national/multinational chains, in air-conditioned malls, having debit/credit cards and consuming electricity in excess of Rs50,000 per month.
The government has imposed 5 percent GST on those retailers who are paying electricity bill up to Rs20,000 and 7.5 percent GST on those who are paying bills exceeding Rs20,000 per month.The government has imposed advance tax in adjustable mode on air tickets for travelers of first class/Club Class as 3 percent tax rate is proposed for registered persons and 6 percent for non-registered persons.
The government has also slapped adjustable advance tax on purchase of immoveable property with 1 percent for registered persons and 2 percent for unregistered persons into tax system. For domestic electricity consumers, it is proposed to collect adjustable advance tax at the rate of 7.5% on the monthly bill of above Rs100,000.
The government has slapped an extra 5 percent adjustable advance income tax on interest income (over Rs500,000) and dividend income for non-compliant.The government has proposed adjustable advance tax on purchase/registration of new private vehicles; the rate for non-compliant is double of the compliant.
By removing the tax exemptions, the government has proposed in the Finance Bill 2014-15 discontinuation of reduced rates of tax deducted from advertising agencies, which has now been enhanced from 5 percent to 10 percent.
The government has slapped withholding tax on payment to foreign news agencies from earlier 0% to 20% in the budget.The government has removed tax exemption enjoyed by large trading houses to withhold tax from their suppliers, withdrew tax exemption to commercial income of Hamdard laboratories, rationalising the exemption of mutual funds by making it mandatory to distribute profits in cash as dividends, withdrawn exemption to bonus shares and their taxation at the rate of 5% in the budget.
The sales tax (ST) on steel melters/re-rollers has been increased from Rs4 to Rs7 per unit of electricity, ST payable by ship-breakers increased from Rs5,862/MT to Rs6,700/MT and rate of tax on import of re-meltable scrap increased from Rs1,600/MT or 5% (whichever is higher) to Rs5,600/MT.
By removing the SROs, the government has withdrawn SRO 549/2008 for zero rating on crude oil, etc. The government has withdrawn the SRO 551/2008 for general exemptions.Through withdrawal of SRO 727/2011, the government has imposed reduced tax rate of 5 percent on machinery.
Through the removal of SRO 501/2013, the government has removed exemption on dairy and stationary, etc.Replacement of capacity tax on aerated waters has led to excessive litigation and the Lahore High Court has passed an order against the scheme. Therefore, the existing scheme shall be reverted to the normal tax regime.
The Federal Excise Duty on the cement sector is being replaced from specific basis (Rs400 per MT) to 5% on retail price. It will be enforced through the Finance Bill, 2014, effective from 01.07.2014.
The government has imposed 5 percent regulatory duty on luxury items in order to discourage imports. The general tariff slabs were reduced from 8 to 6, minimum slab of zero has been replaced with 1 percent while socially sensitive items will be maintained at zero percent such as oil, tomatoes, onions, pulses, beans, fertilisers, etc.
To minimise chances of mis-declarations, delays due to lab tests and to eliminate discretions, customs duties on items proposed has been rationalised, which include alloy steel, generators above 110 kvs, dyes, CDs, UPS and convertors, flavouring powder, liquid paraffin, dryers and networking equipment. The government has also rationalised the duty on hybrid vehicles and upward revision by 10% of fixed amount duty and taxes on used vehicles. Treating the tax withheld from sports persons at the rate of 10% as final tax has been announced in the budget.
Tax relief measures in the budget 2014-15: To encourage industrialisation and to promote fruit processing in Gilgit-Baltistan, Balochistan and Malakand Division, exemption of customs duty and sales tax on import of plant, machinery and equipment.
For industrialisation in Fata, plant, machinery and equipment for industries in Fata, exemption has been granted from customs duty and sales tax. In order to reduce the input cost for industries, customs duty on PET coke as an alternative fuel to coal to be reduced from 5% to 1%.
The government has exempted from customs duty and sales tax import and supply of high efficiency irrigation equipment and greenhouse farming equipment for agriculture sector. The government has reduced the rate of sales tax on local supply of tractors from 16% to 10%.
The government has reduced the rate of FED on telecommunication services from 19.5% to 18.5% and has withdrawn FED from the provinces where the GST on telecom services has been levied. The rate of the withholding tax on telecom services has been reduced from 15% to 14%.
To encourage Foreign Direct Investment, the corporate tax for foreign investment has been reduced from 33% to 20% for five years in the budget.
Instead of imposing normal tax rate on gains through stock market share, the government has imposed 12.5% for holding period up to 12 months, 10% for holding period of more than 12 months and up to 24 months. The rate of corporate tax has been reduced from 35 percent to 34 percent. The tax burden on the disabled persons has been reduced by 50 percent.
The government has repealed the Income Support Levy Act, 2013. The taxation of joint venture in which one member is a company - Company is to be taxed separately from the AOP in its corporate capacity, reduction of advance tax on functions/gathering from 10% to 5%, exemption from Income Tax to Sindh Pension Fund and income tax relief provided to airline pilots. The government has reduced initial depreciation allowance on buildings from 25% to 10%.
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