Chairman Federal Board of Revenue (FBR) Tariq Bajwa said on Tuesday that the government could withdraw exemption statutory regulatory orders (SROs) worth 0.9 to 1 per cent of the Gross Domestic Product (GDP) during three years phase-out plan starting from the upcoming budget (2014-15). The FBR Chairman informed the Senate Standing Committee on Finance that the cost of exemptions was Rs 480 billion which was approximately 2 per cent of the GDP.
It is proposed that the exemption SROs of 0.9 to 1 per cent of the GDP to be withdrawn in phases. When a committee member asked why the FBR was not withdrawing all the exemptions simultaneously, Tariq Bajwa said that if the government could withdraw all exemptions, the FBR would be happy. Later talking to media, he said that the FBR would gradually phase out SROs worth one per cent of the GDP. It is worth mentioning that the 0.9 to one per cent of the GDP is approximately Rs 240 billion.
Certain exemptions cannot be withdrawn. There are exemptions granted under sovereign guarantees, international obligations and commitments. Exemptions are available to the Independent Power Producers (IPPs) or importers of crude oil. Exemptions are also available under the free trade agreements and preferential trade agreements. Total cost of customs duty exemptions incurred during July-February (2013-14) is Rs 21 billion. Tariq Bajwa informed the committee that a high powered committee was reviewing the entire SRO regime. The report of the committee is expected this week.
The international trades as well as domestic taxpayers have to face an intricate regime of concessionary duties & taxes in the shape of different SROs. These SROs constitute a complex de-facto tax structure to allow concession to different sectors based on different criteria each with its own regulatory and control management. In order to address these issues and to ensure equitable tax system in the country, the FBR has prepared a plan for rationalisation of concessionary regime and withdrawal of exemptions/SROs in respect of sales tax, customs duty and income tax. The plan has been approved by the Government. However, a high powered committee has been constituted by the Government to suggest phase-wise withdrawal of exemptions. The committee has held number of meetings and expected to finalise its finding soon, he added.
During the current fiscal year, the FBR has not issued a single individual SRO for granting exemption to any company. The SROs issued are related to the budget and measures announced in the last winding up speech of the Finance Minister for federal budget (2013-14). No individual SRO was issued by the FBR against 56 issued last year. The FBR has realised that the SROs are not providing level playing field to the government. The SROs are creating distortions and any tax measure should be the prerogative of the Parliament.
Responding to a query, the FBR chairman said a total of 14 SROs were issued by the federal government pertaining to income tax policy during the current fiscal. The revenue impact is witnessed in only eight SROs as the remaining related to the devising rules for income tax returns. The net increase/decrease in revenue can be ascertained after the end of the current financial year. However, there is Rs 2.4 billion decrease in revenue due to revision of rate of tax for goods transport vehicle under SRO.980(I)/2013.
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