Finance Minister Shaukat Tarin on Saturday announced dropping taxes worth Rs100 billion proposed on cellular calls and internet usage.
However, he added that the petroleum levy per litre rate would have to be increased to Rs30 to achieve the annual target of Rs610 billion.
Speaking at a post-budget news conference, Tarin said an understanding with Saudi Arabia had also been reached for receiving oil on deferred payments.
“A request has also been made to the IMF [International Monetary Fund] to allow a six-month extension in the construction sector tax amnesty scheme,” he added.
Elaborating on the tax relief, he said the government was not imposing the three types of taxes proposed to be levied on mobile phone calls, SMS and internet.
“The federal cabinet had opposed the decision to impose a Re1 per call federal excise duty, 10 paisas per SMS and Rs5 per gigabyte of internet data use,” he added.
A cabinet member told The Express Tribune that the cabinet had unanimously rejected the Rs5 per GB tax and no decision was made taken on the proposals of cellular calls and SMSes.
The decision to withdraw these two taxes was taken on Saturday, an official of the Federal Board of Revenue (FBR) disclosed.
“One of the reasons behind withdrawing these proposals was that these services are already taxed by the provinces in the form of sales tax on services and the enforcement of these measures would have raised constitutional questions,” he added.
Tarin clarified that the government would not reduce the Public Sector Development Programme to compensate the Rs100 billion losses. “We have some other options,” he added.
A cabinet member said the government might increase taxes on the tobacco industry to compensate for the loss.
The government had proposed a sum of Rs383 billion in new taxes, which has now been reduced to Rs283 billion.
“We have not quit the IMF programme and if the 6th review could not be completed in July then it would be done in September,” the finance minister said in response to a question.
“The IMF is demanding a 100% increase in personal income tax and 46% increase in power tariffs,” he added.
“We will be on track with the IMF programme and the Rs496 billion ($3.1 billion) loans will be taken in the next fiscal year.”
The sources said there was still disagreement on whether or not the FBR could generate another Rs242 billion through administrative means.
To another question about further increasing taxes on petroleum products, the finance minister said that to achieve the Rs610 billion petroleum levy target, the government would eventually have to increase the rate to Rs30 per litre.
Lifting US sanctions on Iran will result in reduction in crude oil prices in the international market and during those times, the government will not pass on the instant relief to consumers to make up for it, he explained.
The minister also said an understanding had been reached with Saudi Arabia on oil on deferred payments but its quantum and terms had not been finalised yet.
“The revival of this facility will also help to lower the taxes on petroleum products.”
Tarin said the government had requested the IMF to further extend the tax amnesty scheme for six months. “The scheme will continue beyond June 30,” he added.
In April last year, Prime Minister Imran Khan had announced the amnesty only for 10 months.
To a question on the impact of regressive taxes on inflation, the minister assured that inflation would not be in double-digits in the next fiscal year, provided that international commodity prices remained unchanged and crude oil prices also did not surge to $100 a barrel.
The minister said that it was an administrative failure that both the farmers and consumers were suffering and the middleman was making money.
“If the core inflation remains low, there is a possibility of further cut in the interest rate,” the minister said.
His comments suggest that the central bank would no longer target the headline inflation figure to set interest rates.
That practice had led to an abnormal interest rate of 13.25% and caused over an increase of Rs1 trillion in debt servicing.
The minister said the Rs5.829 trillion FBR target was realistically aggressive and there would be hardly Rs40 billion to Rs50 billion shortfall in extreme circumstances.
“My plan was to increase the tax-to-GDP ratio by 1% every year for next 10 years but now the process has to be accelerated to achieve this goal in six to seven years,” he added.
About 312,000 people have filed their returns for the first time, resulting in total payments with returns to Rs30 billion for this fiscal year.
The minister said about Rs1.5 trillion retail sales were outside the tax net and if it could capture even Rs600 billion that would yield additional Rs100 billion to Rs150 billion. Tarin said there were six million retail outlets and the government was targeting to install the point of sales on only 500,000 units.
“The government will distribute Rs1 billion a month in prizes among those customers that will claim their sale receipts and share with the FBR,” he added.
Tarin also warned the taxmen to improve their efficiency and behaviour.
“In the short-term, the share of indirect taxes will increase but we will not increase the sales tax rate,” he said.
Read more: Tax exemptions jump to record Rs1.31tr
Tarin added that the federal budget for fiscal year 2021-22 was growth-oriented and the real challenge for the government was to achieve inclusive growth for everyone.
“For the first time we have given an overall growth-oriented budget, Tarin maintained, pointing out the innovation in revenue collection, incentives given to exporters and exemption of duties on local industry.
He said the government's main focus in the budget was to not make poor people wait for the trickle-down effect to reach them.
Tarin said the poorest four million households across the country would be eligible for government help based on a non-political survey on household income levels. “We don't want to play politics with the poor.”
The minister said urban households would be provided with Rs500,000 in interest-free business loans and up to Rs2 million for housing loans.
Farming households would be provided with interest-free loans of Rs150,000 for every crop and Rs200,000 for leasing tractors and other farming equipment and machinery.
“The government has given Rs370 billion in power tariff subsidies and the Power Division will have to improve efficiency against the remaining requirements,” the minister said.
Subsidies have been increased and efficiency will be brought to the power sector. He said DISCOs (distribution companies) would be operated through independent boards and privatised. He also said line losses would be reduced and recoveries enhanced.