Budget proposals finalised SROs' withdrawal, hike in tax rates to help raise Rs 235 billion revenue

Withdrawal of tax exemptions through Statutory Regulatory Orders (SROs), increase in tax rates and revenue measures are projected to generate an additional Rs 235 billion in 2014-15 to meet the estimated Rs 2,810 billion tax collections next fiscal year.
Sources told Business Recorder here on Monday that Ministry of Finance and Federal Board of Revenue (FBR) have finalised the budget proposals for 2104-15. The government is expected to withdraw tax exemptions granted through SROs to the tune of around Rs 104 billion as committed to the International Monetary Fund under the $6.64 billion Extended Fund Facility.
The total impact of sales tax and FED measures are projected at around Rs 70-75 billion. Sales tax measures have been estimated at Rs 35-40 billion whereas FED measures would account for Rs 35-40 billion. The remaining amount is expected to come from measures on the income tax side, expansion of withholding taxes and doubling of withholding tax rates for non-taxpayers and un-registered persons and enhanced documentation of economy.
Sources further revealed that an increase in the rate of Capital Gains Tax (CGT) from 10 to 17.5 percent on securities traded at the stock exchanges in budget (2014-15) is unlikely. The Board is seriously reviewing the proposal to increase the CGT rate from 10 to 17.5 percent in a phase-wise manner. Under an arrangement agreed between the Dr Hafeez Sheikh-led Finance Ministry and stock exchanges, the rate of CGT would have risen from 10 to 17.5 percent for financial year (2014-2015) on disposal of securities held for less than 6 months. Stock exchanges had proposed that the rate of CGT on disposal of securities may be kept unchanged at 10 percent (for holding period of less than six months) from fiscal 2014-2015 onwards.
CGT collections from stock exchanges in Pakistan are appallingly low at Rs 1.26 billion (July 2012 to June 2013). Renowned economist Dr Hafiz A Pasha estimated around Rs 100 billion as potential of CGT from bullish stock exchanges and proposed to the FBR to take appropriate measures to exploit the full potential of taxes from capital markets in Pakistan. The positive trend in stock exchanges should be reflected in tax collections, he had argued. In India, tax authorities are getting Rs 150 billion from stock exchanges.
The FBR has also proposed doubling of withholding tax rates on cash withdrawal from banks and electricity bills in case of non-taxpayers as compared to existing withholding tax rates for National Tax Number (NTN) holders filing returns from 2014-15.