Plan to withdraw Rs88b tax exemptions

The removal of the concessionary tax regime is part of the conditions of the $6.2 billion IMF bailout programme

ISLAMABAD:

The government unveiled a plan on Saturday to withdraw about Rs88 billion worth of income tax exemptions, bringing the total amount it aims to collect in the upcoming fiscal year to Rs168 billion.

The plan largely relies on taking back certain withholding tax exemptions that will increase prices of petroleum products and other imported goods.

It also includes withdrawing concessions on perquisite and benefits available to judges of the Supreme Court and high courts.

However, it is uncertain whether the government will actually touch this area, finance ministry sources said.



Most of Rs88 billion worth of exemptions that are proposed to be withdrawn are indirect in nature and will not have any adverse implications on the incomes of the companies, Federal Board of Revenue sources (FBR) said. In cases where individuals will be affected, the government again appeared reluctant.

For instance, tax exemptions on perquisites and benefits availed by corps commanders are not part of the plan, they said. Even in case of judges, Finance Minister Ishaq Dar did not give his consent, asking the FBR to hold meetings with the stakeholders, sources added.

Similarly, bureaucrats are paying only 5% tax on the up to Rs98,000 car allowance that they are availing, unlike other taxpayers whose vehicular expenses are treated as part of income.

FBR Chairman Nisar Mohammad Khan gave a briefing to Finance Minister Dar about the final phase of the plan for withdrawal of concessionary regime under the head of income tax, which will be withdrawn from July this year. Dar did not approve the plan and another meeting will be held on his return from the United States.

The removal of the concessionary tax regime is part of the conditions of the $6.2 billion International Monetary Fund (IMF) bailout programme. Last month, the FBR had also unveiled a plan to withdraw about Rs80 billion worth of sales tax and customs duty exemptions, also to be withdrawn from July.



Under the IMF condition, Rs105 billion worth of statutory regulatory orders (SROs) and exemptions were withdrawn in 2014-15, with another Rs120 billion worth of concessions taken in 2015-16. The third and final phase will be implemented in 2016-17.

The FBR has proposed to withdraw some income tax exemptions available under part-IV of the second schedule of the Income Tax Ordinance. The most prominent is exemption on payment of withholding tax to the oil sector on imports of petroleum products at the import stage, said the sources.

The FBR has proposed to delete clause 56, which will force petroleum companies to pay 6% withholding tax on imports of petroleum and oils obtained from bituminous minerals crude, furnace-oil, high speed diesel, motor spirit, JP1, base oil for lubricating oil, light diesel oil and super kerosene oil.

Currently, the government deducts withholding tax at source under Section 148 of the Income Tax Ordinance. Under this head, the federal government collected Rs147.4 billion in the last fiscal year, which was over 14% of total income tax collection in that year.

Sources said deletion of Clause 56 will create serious cash flow problems for the oil sector and these companies may pass on 6% tax to the consumers.

The government has also proposed withdrawing advance income tax exemption available on imports of foreign produced dramas and films. It has also proposed withdrawing the final tax facility to certain commercial importers.



There is also a proposal to withdraw income tax exemption on salary paid to an employee employed by the head office abroad.

The meeting also discussed the proposal of withdrawing the facility of tax credit available to non-profit organisations and welfare trusts. The BR informed that certain income tax exemptions available under other laws like the Provident Fund Act, the Employees Old Age Benefit Institute Act, the Services Fund and the Pension Fund cannot be withdrawn until these laws are amended, said the sources.


Published in The Express Tribune, April 10^th, 2016.