The imposition of capital value tax (CVT) on sale/purchase of urban immovable property would help in bringing the speculators of real estate business into the tax net and help in reducing the prices of property in future.
Addressing a post-budget press conference on Wednesday, CBR Chairman M Abdullah Yusuf said that it was for the first time that the government had taken the step to bring the speculators of property business into the tax net.
He said that the people have different viewpoints on impact of CVT levy on property transactions. It has been assumed that speculators would try to shy away from the tax department, which would ultimately bring down property prices in future.
He said that the government had imposed a restriction of five years on import of cars by overseas Pakistanis under baggage, gift and Transfer of Residence (TR) schemes. Previously, there was no restriction of age of vehicle for availing benefit under TR scheme. But, there was restriction of 3 years for import of cars under the baggage and gift schemes. In many cases, very old vehicles, even junk, was imported under these schemes.
The schemes were also misused, which prompted the officials to specify a period of 5 years for import of cars under these schemes. He said that there was no requirement of deletion for the auto sector after introduction of tariff-based system (TBS). However, there should be some protection for the local industry. (i) tariff rate of 35 percent duty on components and parts (for those not produced in Pakistan) for auto industry would be applicable; (ii) 50 percent tariff rate would be applicable on those components/parts manufactured in the country. The policy would definitely protect the local industry. It would also attract investment being hindered by the deletion program.
He said that fixed tax on income from property has not been properly understood. Previously, rental income was included in total income for the calculation of tax. Now, 5 percent fixed tax would be paid on gross rental income and it would not be calculated on total income. It is a relief measure to facilitate the general public, he added.
The CBR Chairman said that the 2006-07 federal budget is basically the continuity of the government's policy to create a conducive environment for investors to achieve high growth rates. The Board would be able to achieve the target of 20 percent in the next financial year, he said.
The CBR strategy focuses on two main areas. It includes taxpayer's facilitation and education under the self-assessment regime. On the other hand, there should be effective systems and procedures to confront the taxpayer with the help of authentic database.
Giving details about the relief measures announced in the budget, he said that customs duty on the import of agriculture tractors (CBU condition) has been abolished, which would help in meeting the demand of local industry. The domestic industry has not been able to meet the demand as per requirement.
He said that sales tax on the import of pesticides would be calculated on the basis of 15 percent value-addition. Previously, the rate was 30 percent value-addition, which has been reduced to 15 percent for the benefit of the agriculture sector.
The new levy is in lieu of the sales tax chargeable on each subsequent stage of value addition. The dealers, distributors and wholesalers of pesticides are not required to pay sales tax on supply thereof. The measure is aimed at simplifying the procedure for the persons engaged in the supply chain with a view to reduce their cost of doing business as well as to ensure availability of pesticides to the farmers at affordable prices.
The Chairman said that the government wanted to reduce customs duty on import of smuggling-prone items. However, local industry wanted to maintain high duty rates on certain items for protection, which barred the officials from tariff rationalisation on these items.
He also elaborated the tax incentive packages given to poultry and dairy sectors. Presently, dairy products including milk, desi ghee, yogurt, etc enjoy sales tax exemption thereby sales tax paid on the inputs consumed in manufacture thereof is not adjustable, thus, adding to the cost of dairy products. Zero-rating of sales tax on dairy products would enable the manufacturers to offset the impact of tax paid on inputs and resultantly lower the cost of these products.
The manufacturing sector has also been given tax incentives through massive tariff rationalisation. The government has also given incentives to the manufacturing sector by lowering the rate of duty on the import of materials imported by the leather/footwear industry, marble/granite sector, pharmaceutical industry and rice parboiling.
The relief to dairy sector would help the industry to become competitive in the global market, he maintained.
He sated that the government wanted to encourage research in the education sector. To encourage investment in research and development activities in schools, colleges, universities and other institutions, exemption of customs duty has been given on the import of machinery, equipment and parts used by these industries.