The new federal government has levied Rs202.6 billion in new taxes in its bid to expand the tax base, while once again relying heavily on indirect modes of taxation. The new tax measures equal 0.8% of the total projected size of the national economy for fiscal year 2013-14, with the government hoping to increase the tax-to-GDP ratio to a decent 9.7%.
A standout development is the government’s decision to increase the standard General Sales Tax rate by 1% to a total of 17%. For non-registered persons, the GST rate has been increased by another 2% to a total of 19%, in the hope that this will encourage documentation of the economy.
The government has also proposed to raise Rs83 billion through new income tax measures, with majority of these introduced as withholding taxes. An amount of Rs63.5 billion will be raised through different sales tax measures, Rs18.4 billion through federal excise duty measures, Rs6 billion through an income support levy on movable assets, and Rs35 billion will be saved on account of administrative measures.
The government has increased maximum taxes on the highest income group (annual earnings above Rs7 million) from 20% to 30%, plus Rs1.4 million. This means that such individuals will pay a sum of Rs1.4 million in taxes for the first Rs7 million they earn, then 30% of everything they earn over and above that sum.
For the second-highest income group (those who earn more than Rs4 million, but less than Rs7 million), the new tax rate will be Rs587,000, plus 27.5% of anything earned above Rs4 million.
For the third-highest income category (Rs3.5 million to Rs4 million), the tax rate will be Rs462,500, plus 25%. For the fourth-highest income group (Rs3 million to Rs3.5 million), the tax rate will be Rs350,000 plus 22.5%. For those earning between Rs2.6 million to Rs3 million, the tax rate will be 20%, plus Rs270,000.
For the income group that earns between Rs2.2 million to Rs2.6 million, the tax rate will be Rs200,000 plus 17.5%. For the income group earning between Rs1.8 million and Rs2.2 million, the tax rate will be Rs140,000, plus 15%. For those earning Rs1.3 million to Rs1.8 million, the tax rate will be Rs77,500, plus Rs12.5%. For those earning Rs800,000 to Rs1.3 million, the tax rate will be Rs27,500 plus 10%; while for those earning between Rs500,000 and Rs800,000, the tax rate will be 7.5%, plus Rs5,000.
Withholding taxes have been levied on commercial importers, contractors, suppliers and services. A withholding tax has also been levied on foreign films, dramas and commodity dealers.
To capture retailers and wholesalers, a 0.1% withholding tax has been levied, which will be collected by manufacturers, commercial importers and distributors. To curb the misuse of the agriculture income tax exemption, the federal government has linked the facility with the condition that landlords pay provincial income taxes.
Data from the National Database and Registration Authority and data collected from banks will be used to catch tax thieves, for which the budget makers have proposed amendments to existing laws preventing that practice.
A 5% withholding tax has also been imposed on hotels, clubs, marriage halls and restaurants if their premises are used to arrange functions. The levy will be adjustable subject to the filing of income tax returns by facility owners. The minimum rate of tax has been doubled from 0.5% to 1%.
The government has brought the real estate sector in the tax net, and levied a Rs50 per square yard tax on constructed area, and Rs100 per 100-square-yard area of developed land.
The Income Support Levy Act has also been introduced to levy a 0.5% tax on moveable assets, receipts from which will be used to fund the National Support Fund, previously known as the Benazir Income Support Programme.
The standard sales tax has been increased to 17% from the current 16%. All taxable supplies made to unregistered persons will include a further 2% tax, taking their total levy to 19%. A 3.5% tax has been imposed on supplies under international tenders.
A 5% sales tax has also been imposed on the electricity and gas bills of commercial and industrial consumers who are as yet unregistered.
It has also been proposed that production processes be electronically monitored through video links, tax stamps and labels to discourage tax evasion. The relief packages previously extended to war-torn areas have also been withdrawn.
The excise duty rates on cigarettes have been increased by reducing slabs from three to two. On aerated beverages, a fixed federal excise duty has been levied on the basis of installed capacity.
With effect from fiscal 2014-15, the maximum corporate tax rate will be reduced by 1% annually to bring it down to 30%, from the present 35%. Income tax exemption for investment in special economic zones has been proposed to be increased to 10 years from the present five years.
Exemption certificates for manufacturers on the import of raw material will now be given subject to the payment of their tax liabilities for the past two years.
All types of taxes on the import of hybrid electric vehicles of up to 1,200cc engine capacity have also been waived. For cars of 1,201-1,800cc engine capacity, 50% of the duties have been waived, while 25% relief has been proposed for cars above 1,801cc engine capacity.
Published in The Express Tribune, June 13th, 2013.
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