Measures proposed for simplification of tax laws, documentation of economy: Hammad Azhar

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ISLAMABAD, Jun 11 (APP):Minister of State for Revenues Hammad Azhar on Tuesday said that government has proposes several taxation measures in its federal budget 2019-20 for broadening the tax base, documentation of national economy through simplification of tax laws and a friendly tax compliance regime.

Delivering his budget speech in the National Assembly, the minister said that broad principles of the proposed taxation measures for FY 2019-20 are embodied in the Medium Term Policy Framework, envisioned by this government.
The framework is pivoted around bridging the tax gap in revenue collection and actual potential in medium term. Pakistan’s tax expenditure has been estimated at Rs. 972.4 billion for fiscal year 2018-2019.

He said this expenditure is a consequence of the multiple tax exemptions and concessions, provided to various sectors of economy. Whereas these exemptions and concessions serve as an incentive on one hand, at the same time, they tend to distort market competition and result in forfeiture of a large quantum of tax revenue.
Besides, he said that enhanced revenue generation and allied outcome of scaling down these exemptions and concessions, would be the broadening of tax net.
Hammad said that two pronged efforts are proposed to be made to minimize the tax gap which included phasing out tax exemptions and concessions, gradual uniformity in Value Added Tax (VAT rate and review of special procedures, adding that government’s focus shall be to ensure effective and harassment-free taxpayer compliance.
The government, he said that also introduced a reform package by promulgating the Assets Declaration Ordinance, 2019 to allow the non-documented economy’s inclusion into the taxation system and serve the purposes of economic revival and growth by encouraging a tax compliant country.
Hammad Azhar said that the government strongly believes that customs tariffs rationalization is a key requirement to boost exports and domestic manufacturing and for this purpose, duty on more than 1,600 tariff lines, being raw materials and intermediaries in principle, is being exempted in this budget.
This measure will cause a revenue loss of around Rs. 20 billion but much higher gains are expected in return from industrial growth, he added.
The State Minister said that textile sector is important and government’s policy is to support this sector with exemption of duty on various accessories and parts of textile machinery. Similarly, duty on elastomeric yarn and non-woven fabric is to be reduced, where as basic raw material for paper production like wood pulp and paper scrap, may be exempted from customs duty and duty on different types of paper may be reduced from 20%t to 16%.
To promote non-traditional exports, duty on some of the inputs of wooden furniture and razor manufacturing also proposed to be reduced, from 3% to 0% on wood and from 11% to 3% on wooden veneering panels to save local forests and to encourage furniture manufacturers. He said that decrease in duty from 11% to 5% on steel strip for razor exporters is also being proposed.
To reduce input costs of domestic home appliance industry, printing plate industry, solar panel assemblers and chemical industry, duties on their inputs like parts/components of home appliance, aluminum plates, metal surface agents and ascetic acid is also being proposed to be reduced.
In order to encourage investment in large scale manufacturing, exemption of duty is also being proposed on import of plant and machinery for setting up hydrocracker plants for oil refining.
He said prohibitive regulatory duties to save forex reserves succeeded in creating import compression but some of these items shifted to transit trade and were smuggled back. It is proposed that duty structure on tyres, varnishes and food preparations for food industry may be rationalized to discourage their shifting to smuggling and realize the lost revenues on this account, he added.
He said that in order to reduce cost of medicines for general public, 19 items of raw materials and essential items of medicinal use are being proposed to be exempted from 3% import duties. Similarly, medicines for rare diseases like Wilson’s disease and Cystinosis disease are proposed to be exempted from import duties.
Hemodialyzer is used in hydrolysis equipment for patients suffering from kidney failure. It is proposed that its raw materials and components may be allowed duty
free import for local manufacturers., he added.
It is pertinent to mention that during first eleven (11) months of the current fiscal year, duty free concessions worth more than Rs. 124 billion were allowed on the imports of inputs and raw materials by the prospective exporters under different Export Facilitation Schemes. In order to further reduce time lag for exporters, their input/ output ratios are being proposed to be accepted provisionally subject to final determination, without causing any delay in fulfilling export orders.
The minister said that money laundering is a menace and source of bad publicity and economic cost, a completely new regime is being proposed to curb the practice of trade-based money laundering.
A new separate Directorate of Cross Border Currency Movement has also been established for focused enforcement against money laundering and currency smuggling to reflect Pakistan’s commitment towards fulfilling FATF’s action plan.
Realizing the fact that any increase in duty and taxes at import stage is passed on to the consumer, effort has been made to keep revenue measures from import stage at a bare minimum, adding that it is being proposed that the rate of additional customs duty may be enhanced from existing rate of 2% to 4% and 7% on tariff slabs of 16% and 20%, respectively, which in principle, are finished products, including luxury items.
Presently, LNG is exempted from customs duty. Since LNG has replaced Furnace oil which was subjected to 7% customs duty, it is being proposed to levy 5% customs duty on the import of LNG.

The minister said in the interest of poor people at large, the government had not adopted the easier option of collecting revenue by increasing the general sales tax rate of 17%.
The government, he said, had proposed relief measures for lower income segments of the society. Presently, brick kilns were being taxed at standard rate of 17% and it was proposed to decrease the rate to a fixed rate based on location of the kiln.
He said food related inputs such as meat, vegetables and flour were difficult to document, which resultantly required increased cost of enforcement, Therefore, in order to encourage compliance at a minimal cost of enforcement for the tax authorities, it was proposed to reduce the sales tax rate from 17% to 7.5% against which input tax adjustment would not be allowed.
Presently, he said, the sales tax regime on various forms of milk powder was not uniform. Similar products were subject to varied tax rates. Therefore, in order to remove the anomaly it was proposed to tax both milk and cream, concentrated and unsweetened and unflavoured at 10% instead of current 17%.
He said removal of bar on export of PMC and PVC was proposed for their zero rating export to Afghanistan and Central Asian Republics. The measure would encourage local manufacturing of the aforementioned materials in the country and at the same time would also promote exports, he added.
In order to realize full revenue potential, he said, it was proposed that the items, including auto parts and arms & ammunition be moved to Third Schedule (retail price taxation) of the Sales Tax Act, 1990, and withdrawal of extra tax on them to reduce the cost of production of local industry.
The minister said after the merger of FATA and PATA (into Khyber Pakhtunkhwa) exemptions were extended for five years in respect of supplies to promote economic activity. It was proposed to extend exemption to tax on import of industrial raw materials and plant and machinery also (for the areas), he added.
Additionally, he said exemption was also proposed for supply of electricity to all residential and commercial consumers and to industries set before 31-5-2018 excluding steel and ghee sector in those areas.
The minister said currently commercial imports were subject to 3% value addition tax, which had unnecessarily increased the tax burden. Therefore, it was proposed that 3% value addition tax on import of mobile phones might be withdrawn. The measure would also ensure rationalization of tax on import of mobiles.
It was proposed that exclusion be provided to all petroleum products like furnace oil, imported by the oil manufacturing companies, he added.
He said after thorough study the Special Procedures Rules were being abolished and made part of the Sales Tax Act. All redundant SROs were also being rescinded.