EAC proposals: Banks may be offered tax breaks on concessionary house loans

Advisory Council suggests major tariff reforms, rationalising sales tax rates.

ISLAMABAD: The Economic Advisory Council (EAC) – an economic policy advisory body – has offered its proposals for the upcoming financial year to Finance Minister Dr Abdul Hafeez Shaikh during a meeting here on Friday.

The Council’s convener, former finance minister Dr Hafiz Pasha, revealed that the EAC suggests incentivising housing and small and medium enterprise (SME) loans; introduction of major tariff reforms; and uniformity in sales tax rates as focal points for the government.

The Council has also proposed that the government do away with the culture of passing Statutory Regulatory Orders (SROs), deeming it as a source of corruption in the tax machinery.

Housing, SME loans

In its recommendations, the Council has suggested that loans for the construction of houses be extended at rates similar to those for export financing, which currently stands at 7.5%. The EAC has also proposed special credit lines for house financing and small and medium enterprises (SMEs). In return, the government has been asked to give tax breaks to banks on the proportion of house financing and SME loans extended.

Tariff rationalisation and SROs

The EAC has also proposed tariff rationalisation aimed at bringing an end to a concessionary regime favouring a few industries, and urged a crackdown on corruption in the Federal Board of Revenue (FBR). Currently, there are 6,800 tariff lines; two-thirds of these are linked to SROs, needlessly complicating the import and export regime to benefit tax collectors, the EAC said. It suggested an in-depth study in this regard, so that the culture of promulgating SROs is precluded.

Import duties

The EAC has also proposed that import licensing not be used to control imports and exports, and has suggested that concessionary tariffs be made available to all importers without discrimination. The Council has argued for a 5% cut in auto, and a 10% reduction in motorcycle tariffs from the coming fiscal year. Tariffs pertaining to textiles and clothing have also been suggested to be sheared to 10%.

While the government has shown its intention to rationalise tariffs to give relief to consumers, particularly of automobiles and textiles, industrialists have launched a targeted campaign against those who advocate reforms in these highly-protected sectors.

The National Assembly’s standing committees on finance and commerce have raised their voices against undue protection handed out to the auto and textile sectors. “By not lowering auto sector tariffs, the government is protecting three industrialists at the expense of millions of consumers,” said Kashmala Tariq, a member of the Pakistan Muslim League-Likeminded faction.

Taxation

For the upcoming fiscal year, the government has set a tax collection target of Rs2.338 trillion. Worrisome and ambitious as the target may seem, the finance minister insists that no new taxes will be levied and prevalent rates will not be increased.

EAC Convener Dr Pasha said that the EAC has not proposed an increase in tax rates or the imposition of a new tax. Instead, the body has suggested broadening the tax base in favour of increasing the burden on existing taxpayers.

The government should bring uniformity in the sales tax regime, as prevalent rates vary between 16%-26%, the EAC has proposed. The Council has also suggested the government gradually phase out excise duties while retaining duties only on products like cigarettes. In particular, it has suggested lowering the excise duty on cement – arguing that there is no need for an excise duty on an important construction input.

FBR response

An official of the FBR told The Express Tribune that authorities were considering a reduction in regulatory duties on the import of new cars; but he said a final decision will be taken next week. The FBR official said that the government will reduce excise duties on six products from the next fiscal year.

The government will review the EAC’s proposals and give a response early next week.

Published in The Express Tribune, May 26^th, 2012.