The Federal Board of Revenue (FBR) has proposed a special excise duty on imports and increasing withholding tax rates on contractors to raise an additional Rs40 billion needed to meet a key condition of the International Monetary Fund (IMF) bailout programme.
Other proposals include an increase in regulatory duties on so-called luxury goods and a hike in excise duties on cigarettes, finance ministry sources revealed to The Express Tribune on Saturday. The finance ministry has received the recommendations and many of them will be implemented from December, they added.
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The FBR has firmed up two sets of recommendations – one can be implemented through executive powers, while the other requires legislation.
Regulatory duties can be increased by issuing Statutory Regulatory Orders (SROs), sources said. But measures like reintroducing a special duty on imports and raising withholding tax rates on contractors can only be implemented through legislation, they added.
With a little over a week left before the November 30 deadline set by the IMF for a mini-budget, Finance Minister Ishaq Dar will start deliberating upon these options next week. So far, he has preferred to follow an easy path and issue SROs.
Under another IMF condition, the government has withdrawn FBR’s powers to issue SROs except in cases of natural disasters and meeting commitments made to international financial institutions.
Dar has already stated that increasing regulatory and federal excise duties are among his preferred options. Increasing excise duty on cigarettes would fetch additional revenue of at least Rs5 billion.
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Changes in regulatory and excise duties, and imposing the special excise duty will also automatically increase collection of sales tax, as it is calculated by including all duties and levies. This would fuel inflation as well.
Sources said imposing 0.5% special excise duty on imports would be a step backward. The Pakistan Peoples Party government had abolished it in 2012 to relieve businesses and middle class consumers.
To secure the release of the last tranche of the $6.2 billion IMF loan, the government has already issued a policy directive requiring all government suppliers to be on the current list of active taxpayers to conduct business with government departments. The purpose of the IMF condition was to bring the contractors in the tax net.
The need for a mini-budget arose due to FBR’s failure to achieve its July-September tax collection target of Rs640 billion. The price for this failure will be now paid by consumers.
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Last month, the Washington-based chief of the IMF mission in Pakistan Harald Finger said there was a shortfall of about Rs40 billion in tax revenues which the government would bridge by taking additional revenue measures. In case Pakistan fails to introduce new measures, the IMF Board meeting will not be called to approve of the next $502 of the Extended Fund Facility programme, finance ministry officials said.
There was also a proposal to increase WHT rate from 7% to 8% on payments made to contractors by companies and from 7.5% to 8.5% on payments made by individuals and association of persons to the contractors. If the contractors are not income tax filers, the rates are proposed to be increased from 10% to 11%, said sources.
“All this speculative and serious discussion [on new tax measures] has yet to take place. It will begin in the next few days,” said Special Assistant to the Prime Minister on Revenue Haroon Akhtar Khan.
Published in The Express Tribune, November 22nd, 2015.
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