Tax cut: Withdrawal of concessionary regime delayed

PM was informed that consultations with certain sectors were incomplete.

ISLAMABAD:

As the International Monetary Fund’s (IMF) given deadline to levy about Rs220 billion more taxes in new budget approaches, the government’s much-hyped plan to withdraw tax exemptions granted to affluent people still remains incomplete.

The second meeting of a committee, constituted by Prime Minister Nawaz Sharif to review the concessionary regime governed through Statutory Regulatory Orders (SROs), could not finalise its recommendations for the premier due to incomplete consultations, according to officials of the Ministry of Finance.

So far consultations with textile industry and automobile sector, the two biggest beneficiaries of the SRO regime, have not been completed, according to a participant of the meeting.

The meeting was held on Monday in the Federal Board of Revenue (FBR) Headquarter and chaired by Finance Minister Ishaq Dar. Minister for Planning Ahsan Iqbal, Minister for Commerce Khurram Dastgir and newly-inducted Minister of State for Textile Industry Abbas Afridi also attended the meeting.



Dar is supposed to share the recommendations with the Prime Minister before the upcoming third review of the $6.7 billion IMF programme, which is scheduled for April 30. During the review meetings, both sides will give final touches to the budgetary proposals for next financial year 2014-15, starting from July.

Under the $6.7 billion three-year bailout package, the PML-N government has given written assurances to the IMF to levy additional taxes equivalent to 0.75% of Gross Domestic Product from the fiscal year 2014-15, amounting to estimated Rs218 billion in tax revenue.

Achieving the medium-term budget deficit target “will require further fiscal consolidation of about 1.5% of GDP per year … and roughly half of the adjustment could come from revenue side, mainly from elimination of SROs”, according to a letter of Intent, signed by Finance Minister Dar and submitted to the IMF.

On the basis of the written assurances, the IMF has already added in December a new condition in its $7.6 billion package that asks the government to eliminate exemptions and concessions granted through SROs for an amount consistent with fiscal deficit reduction objective for fiscal year 2014-15.

Earlier, Dar had constituted a sub-committee under Chairman FBR Tariq Bajwa for firming up the recommendations. The sub-committee gave a detailed presentation to the main committee, according to an official handout.

Proposals

The Finance Ministry sources said the sub-committee has proposed to withdraw those SROs where imports remained below Rs30 million per annum. Secondly, the SROs which are currently covering 80% of the total imports in any sector have been proposed to be withdrawn and such concessions are be given tariff cover. Thirdly, the sub-committee has proposed to withdraw protection from the industries that have established or about to establish themselves in the domestic markets, the sources said.

However, due to incomplete consultations some of the federal ministers suggested to first hold discussions with all stakeholders aimed at avoiding embarrassment at the highest levels.

“The revenue equivalent to 0.7% of GDP will be raised by withdrawing tax concessions and levying new taxes as well,” said FBR Chairman Tariq Bajwa while talking to The Express Tribune. He said the work to prepare the plan to withdraw the tax exemptions was on track.

The ongoing exercise to withdraw the SROs was again the result of an IMF condition. The IMF had asked Pakistan for chalking out comprehensive plans to withdraw tax exemptions. The FBR has worked out around Rs480 billion worth tax exemptions. It has estimated that the sales tax exemptions are valued around Rs245 billion. The customs duties exemptions value was Rs135 billion and income tax exemptions have been estimated at Rs90-95 billion.

Dar directed the FBR chairman to meet the representative of the Chambers of Commerce and Industry for incorporating their recommendations, according to the handout.

Published in The Express Tribune, March 25^th, 2014.

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