Budget: Widening the pie - Govt seeks additional revenue

Plans to raise Rs50 billion in additional taxes, Rs35 billion administratively.

ISLAMABAD:

A significant increase in non-development expenses has prompted the government to raise Rs50 billion through additional taxes in the next federal budget, in addition to assigning the Federal Board of Revenue with the task of raising roughly Rs35 billion through administrative measures and by broadening the tax base.

The tax target will be Rs2.338 trillion in the fifth budget of the Pakistan Peoples Party-led coalition government, which will be announced by Finance Minister Dr Abdul Hafeez Shaikh on June 1.

Proposed changes

According to tax officials, rates on certain items will be decreased in the hope of enhancing compliance. Among them are tyres of agriculture machinery and passenger cars – on which there is a proposal to decrease customs duties by 5% and withholding tax by 2% to discourage smuggling. Duties on import of cars may not be changed, sources said.

For additional revenue, the government will withdraw certain sales tax exemptions, increase federal excise duty on cigarettes by 5% on all categories and, for the first time, levy 10% federal excise duty on liquor. Currently, the provinces charge excise duty on liquor sold to diplomats, non-Muslims and five-star hotels.

On sugar, sales tax is proposed to be increased to 16% from the current 8%,  fetching roughly an additional Rs9 billion.

Income tax measures

The tax exemption threshold is proposed to be increased to Rs400,000 per year, from the current Rs350,000, and the tax to be calculated on net income, excluding the threshold amount.

There are also proposals to simplify the tax brackets and reduce income tax slabs to 5, from the current 16.

Sources said there will not be any revenue losses, despite relief on income tax, as the tax liabilities of the two highest income groups will increase.  Income tax exemptions granted to the president, provincial governors, chief of army staff and judges of the superior court, however, will not be withdrawn.

So far, the government has not decided the exact increase in employees’ salaries. The finance ministry advocates a maximum 20% increase but the final decision will be taken by the Cabinet. Pensions will also be increased by the same percentage.

“No one will be worse off after the budget”, said Finance Minister Dr Abdul Hafeez Shaikh while talking to The Express Tribune. He said there will be no radical changes in the budget and continuation of policy will be assured.

Total size of the budget

As of May 29, the government has not formally finalised the size of its total expenditures. Sources said so far the expenditures have been assessed at Rs2.98 trillion, or 18.8% higher than the outgoing fiscal. Another official said that the finance ministry was resisting to project expenditures above Rs3 trillion.

Officials said that the size of the budget has increased due to greater allocations for power subsidies, grants to Azad Jammu and Kashmir, Fata and Gilgit-Baltistan.

Published in The Express Tribune, May 30^th, 2012.