Talking to reporters, Shaikh said the federal and provincial governments agreed to keep the base tax rate at 15 per cent in the reformed general sales tax regime. However, for a specific period ranging from 9 to 18 months, the rate may be kept at the existing 17 per cent.
“In order to meet the pressing financial needs that arose in the aftermath of the floods, the tax rate will be higher for a specific period.”
The Centre and the provinces on Monday agreed to levy sales tax on services and reform the existing distorted tax regime aimed at enhancing the revenues. One per cent sales tax earns at least Rs35-36 billion annually.
Shaikh said the rate of flood surcharge would be much lower than 10 per cent. “This number is too high a percentage as the final figure will be lower.”
He clearly said the flood surcharge would either be on income or imports and the government would have to strike a balance keeping in mind the capacity of taxpayers.
The government is considering levying a special one-time surcharge to recover flood losses, leading to a revision of the budget within three months of its announcement.
Shaikh said the flood surcharge would be slapped on those who were able to pay, particularly property holders and big land owners. But it would be a one-off move.
The minister said the federal government would levy the tax on those goods and services where the Constitution permitted. However, agriculture is a provincial subject and provinces are authorised to take any decision on the subject.
He said the withdrawal of tax exemptions was part of the reformed GST. “The government will not withdraw all exemptions at once rather the process will be gradual,” depending upon the Federal Board of Revenue’s capacity constraints in collecting the taxes.
Over the years, successive governments have extended tax holidays. They have exempted even domestic sales of export-oriented sectors like textile, surgical, pharmaceutical and leather.
He backed the proposal to expose those who did not pay taxes, whether they were politicians, industrialists, contractors or big retailers.
The minister said the reformed GST would be implemented through a legislative process, adding the government intended to improve the distorted sales tax regime in consultation with the provinces.
He said a final agreement was very near and would be announced within a couple of days. He said the reformed GST bill would be presented in parliament after reaching consensus.
Shaikh said both federal and provincial governments were sincere about enhancing revenues and honouring international commitments, hinting at the International Monetary Fund’s condition of overhauling the tax regime by October by withdrawing tax exemptions and imposing sales tax on services.
To a question, he said international financial institutions cannot dictate their terms as Pakistan is a sovereign state.
Published in The Express Tribune, September 29th, 2010.
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