Ishaq Dar proposes various tax relief, revenue rationalization measures for FY 2016-17

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ISLAMABAD, June 3 (APP): The federal government on Friday proposed a number of tax relief and revenue rationalization measures to achieve higher economic growth and development that commensurate with the country’s true trade and economic potential.
Minister for Finance Ishaq Dar while presenting the federal budget for the fiscal year 2016-17 before the National Assembly proposed different relief and revenue measures in Income Tax, Withholding Tax, Sales Tax, Federal Excise Duty and Customs Duty regimes.
Announcing relief measures in the Income Tax regime, the Finance Minister said in order to encourage corporatization, the corporate tax has been reduced to 31% for Tax Year 2017 and will further come down to 30 % in Tax Year 2018.
He said, in order to encourage the organized sector, tax credit which is 20% at present on tax payable for enlistment in stock exchange and available for one year, is proposed to be made available for two years instead of one year.
The Finance Minister said in order to promote activity in the housing sector and meet the deficiency of available housing units, a current deductible allowance upto Rs one million on payment of profit on debt for construction of a new house or acquisition of house, is proposed to be increased to Rs two million.
In order to promote relief on education expenses, which are unbearable for low income groups, it is proposed that individuals having taxable income less than Rs one million should be given tax relief equal to 5% of school fee upto Rs 60,000 per child per annum, he added.
The Finance Minister said at present a tax credit is available for contribution in an approved Pension Fund with a maximum of 20% taxable income, adding, an additional contribution of 2% for persons above 41 years of age to a maximum of 50% of taxable income is available upto June 30, 2016.
It is proposed that the period may be extended upto June 30, 2019 with the condition that the maximum tax credit be restricted to 30% of taxable income of the preceding year, he added.
The Finance Minister said to facilitate the low income group, it is proposed that the final tax on Commission Income of Life Insurance Agents may be reduced from the current 12% to 8% for the filers on commission receipts utpo Rs 0.5 million.

Finance Minister Ishaq Dar said to provide relief to salaried taxpayers, the current limit of Rs. 100,000 on employer’s annual contribution in the Provident Fund is proposed to be enhanced to Rs. 150,000.
He said the exemption from payment of minimum tax at 1% during the first 10 years of commencement of business operations, which shall expire in June 2016, is proposed to be gradually withdrawn and minimum tax is proposed to be reduced to 0.5% of the entire turnover upto Tax Year 2019.
The Finance Minister said for distributors of Fast Moving Consumer Goods (FMCGs), it is proposed to reduce Witholding Tax rate on supplies from 4% to 3% for companies and from 4.5% to 3.5% for others. However, no reduction would be available for non-filers, he added.
He said, it is proposed that reduced tax rate of 2% allowed to low profit margin corporate service providers for Tax Year 2016 may be extended for Tax Year 2017. In order to promote IT sector, it is proposed that this concession may also be provided to providers of IT and IT enabled services.
The Finance Minister said in order to facilitate persons deriving income from renting of property including widows and senior citizens taxation of property income in the case of individuals and associations of persons, is proposed to be simplified.
It is proposed that for such persons the property income may not be clubbed with income under other heads and may be taxed as a separate block of income, he said.
Ishaq Dar, however, added that income upto Rs. 200,000 shall be exempt and income upto Rs. 2,000,000 shall be taxed in slabs of 5%, 10% and 15%. Income above 2,000,000 shall be taxed at 20%, he added.
He said, it is proposed that advance tax may also be paid on the basis of ACT (Alternate Corporate Tax) paid for tax year 2015, adding, this will not create any additional liability for the taxpayers and only represents a change in collection methodology.
The Finance Minister said in order to discourage avoidance of tax and to bring uniformity in application of law, it is proposed to withdraw exemption from minimum tax at the rate of 1% to companies declaring gross loss.

Finance Minister Ishaq Dar said it is proposed that the maximum taxable holding period for capital on securities may be extended from 4 to 5 years.
In order to encourage compliance with tax laws, it is also proposed that, for non-filers, higher tax rates of 18%, 16% and 11% for holding period of upto 1 year, 2 years and 5 years, respectively, may be introduced, he added.
Ishaq Dar said, as investment in real estate is a means of earning huge gains, it is proposed that capital gain on disposal of immoveable properties be taxed at a rate of 10% if the property is sold within five years of acquisition.
He said it is proposed that in view of the peculiar nature of the business of print and electronic media withholding tax for providing or rendering services by print and electronic media be enhanced from 1% to 1.5% and the withheld tax may be treated as the final tax in respect of the income from these receipts.
Concessionary rate of customs duty on import of newsprint by newspapers and exemption from sales tax on newsprint shall remain intact, he added.
The Finance Minister said profit on Term Finance Certificates is exempt from withholding tax if paid to a company whereas the companies are required to pay tax on their income at the time of filing of their return.
It is proposed to withdraw this exemption in order to streamline the collection of tax from this source, he added.
The Finance Minister said to provide a level playing
field it is proposed that manufacturers availing the facility
of exemption certificate may be subjected to compulsory audit
of consumption, production and sales
He said in the budget for the financial year 2015-16, a tax on the income of the affluent and rich individuals, association of persons and companies, earning income above Rs. 500 million in tax year 2015 at a rate of 4% of income for banking companies and 3% of income for all others, was levied.
Since the circumstances that necessitated this measure are still continuing, it is proposed to extend this measure by one year for Tax Year 2016, he added.
Ishaq Dar said a large number of persons are filing sales tax returns with the provincial revenue authorities but are not filing income tax returns.
It is proposed that such non-filers may be required to pay advance income tax monthly, to be collected by provincial revenue authorities along with sales tax returns, at the rate of 3% of turnover, he added.
The Finance Minister said in order to broaden the tax base and document transactions, withholding tax is collected on sale of property and also from the purchaser of property if the value of property is more than Rs. 3 million.
However, the withholding tax on sale and purchase is based on DC rates which are far lower than the actual market prices and are not revised frequently to reflect in creasing property prices. It is proposed to increase the rate in case of sale of property from 0.5% and 1% to 1% and 2% for filers and non-filers respectively and in case of purchase of property, from 1% and 2% to 2% and 4% for filers and non-filers respectively, he added.
The Finance Minister said various minerals are being extracted in all four provinces through licenses granted by the provincial governments. Most of the non-corporate persons engaged in extracting minerals, are non filers.
To broaden the tax net, it is proposed that Provincial Government authorities collecting royalties at the time of dispatch may also collect withholding tax at the rate of 5% of the value of mineral, he added.

The Finance Minister said in most of the countries dividend was taxed at normal rates so that there was no adverse impact on the aggregate tax payable on the income of the company.
To narrow this gap in Pakistan and to encourage compliance with tax laws it was proposed that, the rate of tax on dividend in the case of non-filers might be increased from 17.5% to 20%. The tax withheld in excess of 12.5% shall remain adjustable, he added.
The minister said for rationalization of Withholding Tax on electricity, it was proposed to increase the rate of WHT for commercial bills above Rs 20,000 from 10 % to 12%. There would be no change for industrial consumers, he added.
He said non-filers tried to avoid higher rate of tax at the time of purchase and registration of vehicle by getting vehicles leased from various banks, leasing companies etc and the vehicles are registered in the name of the leasing company or bank.
To avoid this misuse, it was proposed that an adjustable withholding tax at the rate of 3% of the value of vehicle be collected by every bank/leasing company etc from non-filers at the time of lease, he added.
Ishaq Dar said in line with the one basket approach for banking companies introduced last year, it was proposed that income of insurance companies from all sources might also be subjected to same corporate tax rate.
He said compared to high profit margins of stock brokers, the withholding tax rate of 0.01% withholding tax on commission of members of Stock Exchange was quite low. It was proposed that it might be enhanced to 0.02%.
The minister said since prize bonds were bearer instruments, they were often used by tax evaders and non-compliant persons to whiten their income.
Therefore, it was proposed to increase the withholding tax rate for non-filers from 15% to 20% on winning of prize bonds, he added.
He said it was proposed to introduce higher tax rates of 15% for non-filers receiving dividend from Mutual Funds. The rate for filers would remain unchanged at 10% and the excess tax at 5% for non-filers would be adjustable, he added.
The minister said through Finance Act, 2015 a transaction tax was levied on trading of commodity futures contracts on Pakistan Mercantile Exchange (PMEX).
It was proposed that instead of tax on transaction, tax be levied at the rate of 5% on actual capital gain as was being done for securities traded on Stock Exchange, he added.
The Finance Minister said the undocumented sectors of the economy, including retailers and small businesses, under-reported their income. In many cases declared income was below taxable limit.
Consequently, he said their contribution to revenue was much lower than their share in GDP. Currently minimum tax at the rate of 1% of turnover in case of AOP and individuals was applicable only where turnover was above Rs 50 M. It was proposed that this limit might be reduced to Rs 10 M, he added.
Ishaq Dar said bulk of the public savings were parked in housing sector and heavy investments were made in real estate, yet tax collection from this sector did not match with level of investment and the profits earned.
A final tax scheme on the basis of fixed tax per unit area basis was proposed to be prescribed for builders and developers, he added.

The Finance Minister said through Finance Act 2013,
withholding tax was imposed on airing of foreign produced TV plays
and serials only on landing rights channels.
In order to encourage locally produced plays and to enable the
local production houses to compete with the foreign productions,
this withholding tax is now proposed to be collected from all TV
channels airing such foreign produced content, he added.
He said it is also proposed that any person making payment for
a foreign produced advertisement shall collect withholding tax at
the rate of 20% of the payment.
The Finance Minister said in order to promote information
technology it is proposed that sales tax may be exempted on the
import of Laptops and PCs.
This step will also promote genuine imports and will render
informal and illegal imports as uncompetitive, he added.
Ishaq Dar said in order to provide some relief in the prices
of second hand clothing which are used by the common citizens, it is
proposed to reduce the tax rate to from 10% to 8%.
He said it is proposed to withdraw Federal Excise Duty of 16%
on services such as advertisement on CCTV / Cable TV, Shipping
Agents, Banking Companies, Insurance Companies, Cooperative
Financing Societies, Modarbas, Musharikas, Franchise Services,
Stevedores, Stock Brokers, Forex Dealers etc., where Provincial
Sales Tax is payable.
The Finance Minister said in order to prevent the misuse of
zero-rating in stationery items, it is proposed that zero-rating on
these items may be converted to exemption.
He said milk, fat-filled milk and preparations for infant use
have been enjoying zero-rating facility on supplies since the last
so many years. As a result, huge amounts of refunds are claimed by
the dairy sector.
Ishaq Dar said it is proposed that zero-rating on preparations
for infant use may be retained, while the zero-rating on milk and
fat-filled milk sold in retail packing is proposed to be withdrawn.
The exemption on milk and fat-filled milk will remain intact,
he added.
The Finance Minister said cement is currently chargeable to
Federal Excise Duty at the rate of 5% of the retail price. It is
proposed to replace the current regime with fixed rate basis at the
rate of Rs. 1 per kg, he added.
He said in order to stop mis-declaration and to bring the tax
structure in line with market prices, the rates of sales tax on
mobile phones are being rationalized.
The existing sales tax rates of Rs 500 and Rs 1,000 are
proposed to be increased to Rs 1,000 and Rs 1,500 for medium and
high category mobile phones respectively. The rate of tax on low
category mobiles will remain unchanged at Rs 300, he added.
The Finance Minister said in order to enhance revenue from
this non-essential sector, and to keep pace with inflation and
discourage cigarettes smoking amongst the public the rates
of FED on cigarettes are proposed to be increased in two stages with
first stage ending on 30th November 2016.
The increase in tax rate will be about 23 paisa per cigarette
for lower tier cigarettes and about 55 paisa per cigarette for
higher tier cigarettes, he added.

The Finance Minister said the current rate of Federal Excise
Duty (FED) on aerated waters is 10.5%, which is lower than the standard
rate of FED. In order to generate additional revenues from this
growing sector, it is proposed that the rate of FED on aerated water
may be increased to 11.5%, he added.
He said in order to simplify the procedure of payment of sales
tax by Tier-1 retailers and to address their grievances, it is
proposed that in addition to existing regime, the retailers may have
option of a simplified regime of payment of sales tax at the rate of
2% of their total turnover.
Ishaq Dar said concessionary rates of Customs Duty and sales
tax on major poultry feed ingredients like soybean meal and vitamin
premixes shall remain intact.
However, other ingredients that are subject to sales tax at
the rate of 5% are proposed to be subjected to sales tax at 10%, he
added.
He said currently, Marble Industry is mostly unregistered and
is not paying sales tax. The industry has agreed to pay its share if
the tax is collected through electricity bills.
In order to bring this sector in the ambit of sales tax and
encourage registration, it is proposed to introduce sales tax on
electricity consumption basis at the rate of Rs. 1.25 per
Kilo Watt Hour, he added.
The Finance Minister said two years back, on the instructions
of the Prime Minister, tariff reforms process was initiated. As a
result of the efforts of the government, maximum tariff slab of 30%
was brought down to 25%, and the number of tariff slabs was reduced
from 7 to 6 in the budget for financial year 2014-15.
Last year, the highest tariff rate was further slashed to 20%,
and the number of slabs was reduced from 6 to 5, he said, adding
this year the tariff slabs are being reduced from 5 to 4.
The Finance Minister said the new general slabs will be 3%,
11%, 16% and 20%. From next financial year, the 2% and 5% slabs will
be merged in the new slab of 3%.
This. he said, will reduce the cost of import of more than 2,000
items mostly machinery and raw material and will pass on the benefit
of Rs. 18 billion to the industrial sector of the country.
However, other items will continue to be subjected to Customs
Duty at the rate of 5% by shifting these items to the fifth
schedule, he added.
The Finance Minister said the government was endeavoring to
encourage the use of energy efficient technology in the country.
It is, therefore, proposed that Customs Duty may be withdrawn
on the import of essential raw material for the manufacturers of
LED lights in the country. The scope of duty free import of
renewable energy technologies is also being expanded and
streamlined, he added.
Ishaq Dar said keeping in view the importance of automobile
sector in the economic development of the country, a new Auto
Development Policy 2016-21 has already been announced by the
government.
In this budget, measures are being taken to initiate the
implementation of the policy. This will help encourage the
prospective investors to invest in this vital sector of the
economy, he added.
The Finance Minister said where the government is providing
incentives and relief to the agriculture and industrial sector and
taking measures to protect the children from malnourishment, it
is also striving to discourage the use of those items, which are
considered health hazard.
It is therefore, proposed that Customs Duty may be enhanced
from the current 10% to 20% and from Rs. 300/kg to Rs. 600/kg on the
import of betel nuts and betel leaves respectively, he added.