ISLAMABAD: Four out of six sectors currently in final tax regime (FTR) will move from presumptive tax regime to declaration tax regime whereby tax returns will be required to be filed from tax year FY11. Interest or profit earned by individuals on savings and various other debt instruments will remain and small businesses will remain within the final tax regime.
Exporters, commercial importers, contractors and property income will move from FTR (final tax regime) to declaration tax regime. However, all of them will remain under the ambit of one percent minimum tax regime. Exporters, however, will continue to enjoy 100 percent rebate of tax in the first year - with 20 percent reduction in the rebate every year. From year six the rebate amount will be zero and exporters will be required to pay normal tax.
All holders of commercial and industrial electricity and gas connections will be obliged to file tax returns just like motor vehicle owners of 1000cc engine capacity. The exemption limit for income tax may be raised from Rs 300,000 to Rs 350,000 on account of inflation. However, no change in the present tax table is contemplated. The carryover tax period of minimum tax chargeable at one percent of gross annual turnover in loss cases could be extended from three to five years.
Federal government, facing a primary deficit in revenue compared to expenditure minus debt servicing cost, is said to be placed between a rock and a hard place. On one hand, there is a desperate need to get out of the low growth cycle, on the other hand, it has to protect its current revenue collection. There is therefore very little leeway to reduce taxes on corporate sector as well as individuals. However, reducing of tax rate for public listings on a longer-term is contemplated.
Similarly, it is endeavoured to expand the universe for purchase of government debt instruments by enticing both resident and non-resident individuals by offering them at 10 percent tax as a final tax. Individuals could also enjoy up to Rs 500,000 as taxable expense against purchase shares offered in IPO as well as for premium towards life insurance.
The fate of two proposals will be decided at the highest level - between the President, Prime Minister and the Federal Finance Minister. One is the demand to remove Capital Gain Tax (CGT) on equities for a limited time period and collect a turnover tax until the trading volume on the bourses comes up to the required level.
The government has collected a mere Rs 160 million in CGT this year as against Rs 4.5 billion a year ago. And, the other - a minimum asset tax on individuals on assets created out of untaxed income with no exceptions except one self-occupied house with full tax credit for income tax paid either to the Federal or provincial government. The Federal Budget for next year will strengthen the anti-tax avoidance and transfer pricing provisions on the pattern of Indian law through addition of elaborate provisions.
Tax provisions of voluntary pension scheme are to be equated with employer-paid pension schemes with allowance to individuals to switch from VPS to the other and vice versa.
BANKS: The unusually high profits earned by banks due to government's poor fiscal position and over-reliance on borrowing from them for its budgetary needs have attracted the attention of the revenue hounds. FBR, in consultation with SBP, will tax their profit on a higher rate or else only the income earned from government paper over and above the statutory/regulatory threshold.
SBP has been pressing hard to remove the 0.3 percent withholding tax on cash withdrawals to obtain deposit growth while FBR, on the other hand, wants to protect and preserve this source as part of its overall strategy aimed at achieving its gross target.
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