Tax-to-GDP ratio to be raised to 10 percent: new policy on taxation, reforms outlined

The government will introduce new tax policy to raise tax-to-GDP ratio to 10 percent in 2013-14 through measures envisaging re-imposition of Federal Excise Duty (FED) on a number of items, withdrawal of domestic sales tax zero-rating on all items, taxation of goods on the basis of printed retail price and withdrawal of customs duty concessions granted through statutory regulatory orders (SROs).
Sources said here on Monday that Finance Ministry and Federal Board of Revenue (FBR) have outlined new policy on taxation and reforms in the tax administration. According to plan, the FBR tax for the year 2013-14 is estimated at 10 percent of GDP from the existing 9.4 percent of GDP. To achieve this target FBR would undertake a number of policy actions related to improving compliance, ensuring equitable taxation, simplifying tax system, reforming customs administration, and strengthening efficiency and effectiveness of tax system. The aim is to collect additional revenue to the tune of 0.5 percent of GDP each year. Based on this the FBR tax target for 2015-16 is proposed as 11 percent of GDP. Key contours of FBR tax policy included review of exemptions/zero-rating regime; withdrawal of zero rating on domestic supplies other than export sector and incorporation of all remaining zero rating and exemptions granted through SROs in the Fifth and Sixth Schedule to the Sales Tax Act.
Other measures included Risk-Management System (RMS) for addressing the menace of illegal input adjustments and refunds, development and launching of risk management system, safeguarding government revenues by checking illegal input adjustments, and refunds payments by generating discrepancy reports on the basis of RMS. The FBR will also bring improvement in valuation of domestic supplies by identification of sectors for fixation of values for calculation of sales tax.
Expansion of Schedule to Sales Tax Act for revenue maximisation is also part of the measures to expand the tax-base. More items sold in retail package would be brought under Third Schedule, for taxing these items on the basis of retail prices.
On the Federal Excise Duty side, the FBR ahs proposed changes in the in the FED rates on cigarettes for reducing the existing 3 slabs system to 2 slabs system The expansion of FED coverage and identification of sectors for levying FED is also part of the proposals.
The direct taxes proposals included Tax Registration Enforcement Initiatives, 2012 and Investment Tax Scheme, 2012. Tax Registration Enforcement Initiatives 2012 has been devised to register and bring into the tax net non-filers of tax return. Investment tax scheme 2012 is devised to provide a mechanism and to cover regular filer in addition to non-filers of income tax returns to declare un-declared income assets/expenditure upto the value of Rs 10 million by payment of token tax.
Other measures included effective monitoring of withholding taxes, effective mechanism for monitoring the withholding agents and reviving Regional Withholding Units (RWUs). The effective Dispute Resolution Mechanism, simplification of ADRC mechanism and co-opting of relevant stakeholders.
On the customs side, tariff reforms aiming at simplification and elimination of exemptions and concessions, review of exemptions and concessions for minimising the scope of concessionary rates of customs duty, removal of distortions and reducing the number of SROs. Moreover, concessionary regime will be incorporated into tariff for simplicity and transparency.
Roll out of Customs Automated Clearance System and gradual extension of Weboc System to all ports, dry ports and air ports has also been implemented. A scheme for attracting non-customs paid vehicles by paying duty, taxes and fine at reduce rate was already implemented, sources added.