Flood surcharge: Parliament's approval may be sought

The government is likely to obtain approval from Parliament to impose 10 percent flood surcharge as it cannot be levied through statutory regulatory order (SRO), it is learnt. Sources in the Finance Ministry told Business Recorder that the delay in the finalisation of the Federal Board of Revenue proposal for levying 10 percent flood surcharge could be due to absence of legal backing.
Legally, tax authorities cannot impose flood surcharge through SRO. The government may levy the surcharge either through Presidential Ordinance or approval of the Parliament. The SRO does not authorise the tax authorities to impose surcharge whether 5 percent or 10 percent. Due to limitations of the FBR, the proposal has to be approved by the Parliament in the form of a Bill, or promulgation of an Ordinance.
The FBR proposals for levying flood surcharge on tax deducted and surcharge on imports were discussed during August 2010 and in principle the Ministry of Finance agreed to both proposals before going for talks with the International Monetary (IMF) for the fifth review of Pakistan economic performance.
With the fifth review having now been deferred till the government shows improved compliance with IMF conditions, there has been no progress on the issue, they added. Once the flood surcharge is imposed, the income tax surcharge would also be applicable on withholding tax collected from electricity consumed by commercial and industrial consumers. This would imply that the withholding tax on electricity consumed by commercial consumers would increase from 10 percent to 11 percent and for industrial consumers from 5 percent to 5.5 percent after imposition of flood surcharge.
The income tax surcharge would be applicable on all categories of taxpayers including salaried class. The income tax surcharge would be applicable on withholding tax deducted on power bill of the commercial and industrial consumers. Sources said that the surcharge would also be imposed on tax calculated on the income declared by the taxpayers in their income tax returns.
According to sources, only one uniform rate of income tax surcharge would be imposed across the board to generate more revenue. A uniform rate of income tax surcharge would be applicable on salaried class as well as businessmen to meet the revenue needs of the country. The surcharge may be imposed on the tax already deducted by the income earned by business and trade. The income tax surcharge would not be applicable on persons falling below the exemption threshold, sources added.