Govt breaches new budget on very first day

Lowers withholding tax rate for non-filers on banking transactions of over Rs50,000

ISLAMABAD: The federal government on Friday breached the sanctity of the new budget on the very first day of its enforcement, as it lowered the withholding tax (WHT) rate on banking transactions valued at over Rs50,000 by a third for non-filers of income tax returns.

The Economic Coordination Committee (ECC) of the Cabinet approved the reduction in WHT rates on banking transactions from 0.6% to 0.4%. For almost the last full year, the government charged the 0.4% WHT and generated Rs18 billion in revenues.



The cabinet’s economic committee also approved an increase in charges for using water for electricity generation by 180%, which will increase overall electricity tariffs. It also refused to subsidise pulses sold at government-owned Utility Stores after Eid.

The committee deferred a decision on whether to renegotiate the price of gas to be obtained from the Iran-Pakistan pipeline until Prime Minister Nawaz Sharif returns.

Withholding tax

The government had initially decided to restore the original 0.6% WHT rate charged for transactions of over Rs50,000 a day, as it did not bring any change in section 236P of the Income Tax Ordinance through Finance Act 2016.

But on the very first day of the new fiscal year which began Friday, it decided to reduce the rate to 0.4% up to July 31. The move – which was announced by the finance ministry after the ECC meeting –undermines the sanctity of the budget that the National Assembly passed last week.

It also shows that the government is not serious about penalising non-filers, as the numbers of filers plunged by over 14% to 1.02 million in the last fiscal year. Sources said economic policymakers feared backlash from the Pakistan Muslim League-Nawaz’s Punjab chapter.

ECC denies subsidy

The ECC rejected an industries ministry proposal to maintain subsidies on essential commodities, mainly pulses, being sold at Utility Stores. The ministry had proposed the sale prices of six items – Dal Masoor, Dal Chana, Dal Mash, Dal Moong and white and black grams – be maintained at the Ramazan package level. The government was giving Rs10 per kg subsidy on these items.



However, Finance Minister Ishaq Dar directed that the post-Ramazan subsidy should not be linked with the Ramazan package and the matter should be reviewed separately.

In recent months, prices of pulses have increased significantly, putting them out of poor people’s reach. Dar directed Utility Stores Corporation to surrender any fund that remained unspent out of the Rs1.75 billion Ramazan package.

Water use charges

The ECC approved an increase in ‘water use charge’ (WUC) from 15 paisa per unit to 42 paisa per unit, a 180% jump. The money will be paid to the provinces by collecting it from electricity consumers. The rates will be applicable for all upcoming private sector hydropower projects being implemented under the 2002 Power Policy. It was also decided that WUC would be reviewed every five years to determine if an increase is required.

The ECC also approved, in principal, the transfer of hydropower projects to Azad Jammu and Kashmir, and Gilgit-Baltistan. The ECC approved that all hydropower projects established under Build-Own-Operate- Transfer model being implemented under the 2002 Power Policy will be transferred to the respective governments after expiry of their implementation agreements.

Published in The Express Tribune, July 2^nd, 2016.