The government is in a fix over levying taxes on moveable and immovable assets due to legal ambiguities in the light of 18th Constitutional Amendment and has decided to approach provinces to avoid litigation.
The Revenue Advisory Council (RAC), the highest tax advisory body, on Friday was divided over taxing assets from financial year 2011-12 and decided to leave the matter with the Economic Advisory Council with an advice to consult the provinces.
Federal Board of Revenue sources said there was disagreement among tax experts whether the federal government can tax the assets after the 18th Amendment. The government has proposed levy of gross asset tax at the rate of 1 to 1.25 per cent from the next budget.
However, architects of the historical 18th Amendment that financially empowers the provinces say the federal government cannot tax immovable property but it can tax moveable assets.
“The federal government can impose tax on wealth, vehicles, investment and bank balances,” said Senator Professor Khurshid Ahmad, who is also a member of the Senate Standing Committee on Finance.
Ahmad, who was also a member of the 18th Constitutional Committee, said the government can impose wealth tax but it is reluctant to do that.
Military ruler Pervez Musharraf had abolished wealth tax when he had been the chief executive of Pakistan. Involvement of provinces may delay the implementation of gross asset tax as has happened in the case of general sales tax on services, said one of the participants of the RAC meeting.
FBR wants to levy gross asset tax and in return will withdraw one per cent withholding tax. It believes that the asset tax will be more beneficial as it will discourage companies from underestimating their assets due to negative implications on the balance sheet. Currently, one per cent withholding tax is collected on the basis of annual turnover and companies understate their sales to evade taxes.
However, the wealthy business class is opposing the wealth tax and even gross asset tax. Former finance minister Shaukat Tarin had recently said that wealth tax was regressive in nature and it should not be levied.
National Assembly Standing Committee on Finance chairperson Fauzia Wahab told The Express Tribune that there is strong opposition to the gross asset tax and the government may have to drop the idea.
Published in The Express Tribune, May 7th, 2011.
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