Govt plans to expand Super Tax net to individuals

Seeks 20% sales tax rate for majority population amid differences between finance ministry, FBR

ISLAMABAD: The government has proposed to expand the net of Super Tax to high net-worth individuals and increase sales tax rate to 20 per cent for majority of the population amid differences over these measures between finance ministry and the Federal Board of Revenue (FBR) headquarters.

The finance ministry has expressed doubts over a budget proposal to abolish 25 per cent dividend income tax rate on real estate investors, suspecting that the move is aimed at giving relief to a company owned by Arif Habib Group, said sources in the ministry.

While chairing the first formal meeting to review the tax measures prepared by the FBR, Secretary Finance Tariq Bajwa questioned the FBR’s integrity over inclusion of the proposal to end 25 per cent dividend tax on incomes of Real Estate Investment Trust [Reit], said the sources.



He suspected that the proposal has been included to give benefit to Dolmen City Reit, which is listed on the Pakistan Stock Exchange (PSX). The Dolmen Reit owner Arif Habib has publicly expressed reservations over 25% dividends tax.

It was for the first time during the current budget making exercise that presentation on taxation measures was shared with anybody outside the FBR headquarters.

The meeting took place on Saturday in Q-Block – the seat of finance ministry. However, the FBR Chairman Dr Mohammad Irshad – who is also secretary revenue division – skipped the meeting.



Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan also did not attend the meeting, indicating that the FBR headquarters was not very happy with the decision to give secretary finance the central role in taxation related matters.

During the scrutiny of the tax measures, Bajwa was supported by the FBR member tax policy Dr Mohammad Iqbal and Special Assistant to FBR Chairman Amjad Zubair Tiwana.

However, the FBR headquarters would not drop any proposal on the wish of secretary finance, arguing that the authority rests with the Finance Minister Ishaq Dar, source said.



Dar has authorised Bajwa to scrutinise the tax proposals in his absence. He has very busy overseas schedule, which has coincided with budget preparations.

The finance minister is currently on visit to Japan to attend Asian Development Bank annual meetings. After his return he will again depart to China to attend One-Belt One-Road Summit along with Prime Minister Nawaz Sharif. Earlier, Dar had gone to United States to attend World Bank Spring meetings.

Dar will hardly have three days between his return from Japan and departure to China. He will utilise this time to review the budget proposals but before that the finance minister wanted that Bajwa should scrutinise the taxation measures proposed by the FBR.



The government is planning to announce the budget on May 26 this year due to advent of Ramazan. Dar took the decision to involve secretary finance, who is also the FBR’s former chairman, in taxation maters during his talks with the International Monetary Fund (IMF), held early last month, said the sources. The PML-N government's first budget was very unpopular because it had been prepared by the bureaucracy.

Super Tax

During the meeting, Bajwa proposed to expand the net of Super Tax to individuals earning more than Rs10 million annually, said the sources. The Super Tax was introduced for the first time in 2015 for only a year after the Pakistan Army launched Operation Zarb-e-Azb to flush out terrorists from tribal areas.

So far, the government is collecting 4 per cent Super Tax from banks and 3 per cent from other companies earning more than Rs500 million annually. The Super Tax was supposed to end by June this year. Instead, the FBR has proposed to expand it to third year besides increasing the net and rates.



Further Tax

The FBR has proposed that the sales tax rate for unregistered persons should be increased to 20 per cent from 19 per cent. However, the secretary finance has opposed the proposal, saying the measure will be inflationary and highly unpopular.

Currently, the standard sales tax rate is 17 per cent. Over and above this rate, the government charges 2 per cent ‘Further Tax’ from the unregistered sales tax persons. Now the FBR has proposed that the Further Tax rate may be increased to 3 per cent, which means the effective rate will be 20 per cent. Hardly, 150,000 people are registered with the sales tax department and rest will pay 20 per cent rate.

Prime Minister Nawaz Sharif had promised to reduce to sales tax rate to single digit. Instead, the FBR now wants to take it to 20 per cent including Further Tax. However, the FBR believes that in order to achieve next fiscal year’s ambitious target of around Rs3.9 trillion, it needs to take additional measures.