ISLAMABAD: Finance Minister Ishaq Dar will announce income tax benefits in his budget speech for promoting industrialisation, attracting investment and creating jobs amid the highest unemployment level in years and declining investment.
While announcing the budget on June 3, Dar would also extend benefits for listing of companies on the stock exchange, expand the definition of greenfield projects and offer more incentives for housing finance, said sources in the Federal Board of Revenue.
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However, the income tax benefits will largely be concentrated in the industrial sector and the government will have little to offer in tax breaks to the services and agriculture sectors.
Most of these benefits are already being provided for the past few years. Yet the government has failed to increase the investment-to-gross domestic product ratio, which has slipped even below last year’s level in the outgoing fiscal year.
The unemployment rate is also estimated to be at a 13-year high in the last fiscal year. Sources said Dar might announce a 100% increase in tax credit to 2% of the payable tax on creation of 50 new jobs and their registration with the Employees Old-age Benefits Institution.
The tax credit will be available for 10 years from the date of establishing a new industrial unit. Compared to the current expiry date of 2018, it may be extended to 2019.
Sources said the finance minister may also announce an increase in tax credit from 2.5% to 3% of the payable tax for the manufacturers who are making over 90% of their sales to the registered sales tax persons. However, he has rejected similar benefits for the purchasers.
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In order to promote modernisation and replacement of old machinery, the government may also increase the tax credit available under the Balancing, Modernisation and Replacement (BMR) scheme to 20% of the investment.
The scheme is going to expire next month and its current rate is 10%. However, it may be extended for three more years in the upcoming budget.
The government may also enhance the limit for 20% tax credit on listing a company on the stock exchange from one year to two years.
The period for listing benefits should be extended to five years to offset the impact of regulatory burden on companies due to the listing, said Arif Habib, an industrialist and stock market investor.
Dar may also announce additional tax benefits for establishing new industrial units in the country. At present, 100% tax credit is allowed, if 100% fresh equity is raised through issuance of new shares for setting up a new industrial concern. The tax credit is linked with the five-year performance.
According to the new proposal, Dar may reduce the equity limit to 70% and remaining 30% can be arranged through borrowing. The scheme may be extended till June 2019. The tax credit will be directly proportionate to the equity ratio.
He may also announce similar tax benefits for the expansion of existing industrial units.
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A complete income tax holiday is likely on the export of information technology services for three more years, as the existing scheme will expire on June 30 this year.
Encouraging foreign direct investment may also be part of the finance minister’s speech. He is expected to extend the 20% tax benefit scheme for attracting 50% foreign investment for two more years. The facility is available for five years from the date of production.
According to sources, the income tax exemption on investment in greenfield projects may be extended by two more years.
Dar is also expected to expand the scope of sectors that can benefit from this tax holiday package. Industries like aerated beverages, sugar, arms and ammunition, explosives, fertilisers, cigarettes, cement, textile spinning units, flour mills, vegetable ghee and cooking oil manufacturing may be brought under this package.
He may also offer tax benefit allowance on getting loans for constructing homes. Currently, the tax allowance is limited to only Rs1-million loan, which may be increased to Rs1.5 million.
Published in The Express Tribune, May 25th, 2016.
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