The government is presently facing both current account deficit and budget deficit.
These are major issues and Pakistan has already agreed with the IMF to substantially reduce these deficits. The former requires major shifts in trade pattern. Government must increase exports and reduce imports. For the increase in exports, it requires to make its exports competitive in international market for which it would have to take appropriate steps in the forthcoming budget to reduce the input costs, which include cost of electricity, gas and imported raw materials. It must maintain zero rating of imported inputs for cost reduction of the raw material. Government would also require to simplify the customs arrangements for storage of imported inputs and manufacturing bonds.
Imports of items other than essential raw materials, plant and machinery and other capital goods may be either totally banned or subject to high duties to discourage their imports. Government is expected to take the above measures in customs duties. Another important step could be banning import of cars and meeting the transport requirements through import of public transport. This would reduce the expensive oil imports. In the area of direct taxes, instead of increasing the tax rates and taxable income thresholds, government is expected to improve its enforcement and conduct massive market surveys to identify the tax evasion in the parallel economy. For this purpose, business and trade bodies support would be sought in ensuring tax collection without distorting the economic structures. FBR in close cooperation with SECP would identify over 100,000 non-compliant and non-filer registered companies. Government would reduce withholding taxes on tax filers and improve its tax audit through better training of its tax machinery.
These are some of the important areas, where government is seriously focusing on for improving its resources. Provinces would be asked to improve their tax effort as well. The government has already sought HM Treasury assistance in improving tax enforcement. It may also consider assistance from the experienced senior former tax officials and members of the accounting community. Sources close to the financial team and IMF, have been sharing the following features and tax proposals of the proposed budgetary measures of the federal budget for the financial year 2019-2020 to be announced on June 11 evening in the National Assembly of Pakistan by Adviser to Prime Minister for Finance, Revenue and Economic Affairs Dr Hafeez A Sheikh.
Unregistered industrial, commercial entities (not having STRN) having electricity, gas bill amount in excess of Rs20,000 a month, extra sales tax would be increased from 5 percent to 20 percent. Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs1.2 million a year or levy advance income tax withholding of 20 percent. All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers so the exempted income is also reported and wealth is reconciled with income reported in the return.
Withholding tax on international business class tickets under section 236L is same as Rs16,000 for filer and non-filer, it would be increased to Rs50,000 for non-filers. Withholding income tax on interest income u/s 151 is 10 percent for filer and 17.5 percent for non-filers. Rate would be increased to 30 percent for non-filers. Annual private motor vehicle tax u/s 234 for non-filers is Rs30,000 for 2000cc and above. Rate for non-filers would be increased to Rs200,000 for 2000cc and above. Rate of income tax on filers as well as non-filer commercial and industrial connections of electricity is 12 percent and 5 percent respectively. Rate of tax for non-filer commercial/industrial connections would be increased to 25 percent.
At present, 12 percent WHT is being collected from owners of marriage halls on their electricity bills, which does not represent actual tax on their income. Moreover, the same is somehow minimised through use of generators. In order to avoid this, Capacity Tax would be imposed on marriage halls on the basis of per square feet coverage area. List of registered marriage halls paying capacity tax on per square foot basis would be displayed on internet and accessible to all so that it can easily be identified who is not on the list thereby forcing them to get themselves registered and pay tax. Tax on capital gains on disposal of shares of listed company is 15 percent for filers and 20 percent for non-filers. The rate of tax for non-filers would be increased to 30 percent.
List of top 100 restaurants registered in federal and provincial sales tax with the amount of tax paid, would be available on internet accessible to all so that famous busy restaurants which are not on this list or on bottom of the list are induced not to embarrass themselves by declaring low sales. Lottery system be introduced for invoice collected by customers of restaurants and uploaded on designated website. Moreover, invoices submitted by customers should be cross-checked with invoices reported by restaurants in their monthly sales tax return.
Advance tax 1 percent and 2 percent is collected from filer and non-filers respectively on sale of immovable property. For sale of land above 250 square yards, rate of advance tax would be increased to 10 percent. In addition to above referred tax, the real estate constructors should pay additional withholding tax when they get the constructed property registered in the name of buyers of their constructed property. This would be in line with withholding taxes imposed on industries on transactions executed by them. The purchase of land (above specified limit) is only allowed by filers, however, holding of land and its sale by non-filers is still allowed. Holding of land by non-filers should be made more expensive by asking authorities collecting property tax (cantonment boards/societies/registrar) to collect adjustable advance income tax, from non-filers, on behalf of the federal government as follows:
a) Rs500,000 a year for 800 yards or more but less than 1800 yards.
b) Rs1 million a year for 1800 yards and above.
Currently, advance income tax on international travel is being collected as follows, which would be increased as follows:
a) First/executive class – Rs16,000 be increased to Rs35,000 for non-filers.
b) Other excluding economy class – Rs12,000 be increased to Rs20,000 for non-filers.
c) Economy class – no tax is being collected on economy class tickets. To allow data mining, marginal withholding tax (say Rs200 -Rs500) would be imposed on non-filers just to gather data of frequent travelers.
Mobile phone connection should only be available to filers as per CNIC.