ISLAMABAD: The caretaker government is learnt to have prepared a new proposal to take major taxation measures to overcome revenue shortfall during 2012-13. This may be brought in the form of a Presidential Ordinance. If the Finance Ordinance is promulgated, it would be a mini-budget before the announcement of the federal budget for 2013-14.
The expected mini-budget through the Presidential Ordinance may cover new taxation measures including ones on sales tax, income tax, withholding tax, federal excise duty and customs duty.
Sources told Business Recorder that taxation measures may be introduced via the Finance Ordinance may include an increase in the standard rate of sales tax, raising it from 16 to 17 percent; a one-percent increase in customs duty on concessionary items, new Federal Excise Duty (FED) structure on cigarettes and imposition of the FED on items/commodities on which exemption was granted in budget (2012-13).
The Presidential Ordinance may impose a two percent sales tax on supplies to unregistered persons. A one-74percent increase in the rate of customs duty on certain items has been proposed through the Finance Ordinance, sources maintained.
The FBR has proposed to impose FED on lubricating oil, base lube oil, transformer oil, solvent oil, greases and oils. The FBR also intended to re-impose FED on cosmetics and toiletry products, paints and varnishes, air-conditioners and refrigerators.
Through the Presidential Ordinance, other taxation measures may include two new higher slabs of 12.5 percent and 15 percent for property income, enhanced and separate withholding tax rates for corporate and non-corporate sectors dealing in supplies, imports, exports, contracts, services sector and cash withdrawal from banks and expansion in the withholding tax regime to certain goods and services.
Another taxation proposal is to impose 5 percent withholding tax on the purchase of new cars, sources said. Sources said that the Finance Ordinance has proposed all necessary amendments in the relevant Schedules like exemption Schedules of the Sales Tax Act, 1990, Federal Excise Act 2005 and Income Tax Ordinance 2001 wherever required.
Budget makers in the FBR have finalised a draft of the Presidential Ordinance outlining revenue generation measures of direct taxes, sales tax and federal excise duty.
The FBR is expected to forward the draft of the Ordinance to the Ministry of Finance for implementation of new taxation measures before first National Assembly session of the new government.
One of the major revenue generation proposals under study is to enhance the rate of sales tax from 16 to 17 percent. One percent change in the sales tax rate would have an impact of Rs 35-40 billion per annum. In budget (2012-13), the standard rate of 16 percent sales tax remained unchanged. The government had reduced higher rates of 19.5 percent to 22 percent sales tax to 16 percent on the import of around 79 raw materials/inputs at the time of last budget.
A very simple Federal Excise Duty (FED) structure for levying duty on cigarettes has been finalised by the FBR. The Board has estimated to collect Rs 12 billion from cigarette manufactures.
Under first proposed slab, if retail price exceeds Rs 50 for 20 cigarettes, rate of the FED would be 65 percent of the retail price. The second proposed slab reveals that if retail price does not exceed Rs 50 for 20 cigarettes, the rate of the FED would be 25 paisa per stick plus 50 percent of retail price. The existing three slabs have been proposed to be replaced with two slabs of the FED on cigarettes. The existing upper-tier slab, middle-tier slab and lower-tier slab have been merged into two simple slabs of the FED.
The Board has proposed enhanced and separate withholding tax rates for corporate and non-corporate sectors dealing in supplies, imports, exports, contracts, services sector and cash withdrawal from banks.
It has been proposed that the withholding tax rates for commercial importers to be enhanced from 5 to 6 percent for corporate and 5 to 6.5 percent for non-corporate sector. The withholding tax rates for exports has been proposed to be enhanced from one to 1.5 percent for corporate and 1 to 2 percent for non-corporate sector. The withholding tax rate on contracts has been proposed to remain unchanged at 6 percent for corporate sector. However, the withholding tax rates on contracts have been proposed to be enhanced from 6 to 7 percent for non-corporate sector.
The withholding tax rates on supplies has been proposed to be enhanced from 3.5 percent to 4 percent for corporate and 3.5 to 4.5 percent for non-corporate sector. The withholding tax rates on cash withdrawal have been proposed to be enhanced from 0.2 percent to 0.3 percent for corporate and 0.4 percent for non-corporate.
Following new two slabs have been proposed to bring progressively income from property in tax net as under:- 5 percent income tax slab (Rs 150,000 to Rs 400,000); 7.5 percent (Rs 400,000 to Rs 1,000,000; 10 percent (above Rs 1,000,000); 12.5 percent (Rs 2,000,000 to Rs 3,000,000) and 15 percent income tax would be applicable on rental income above Rs 3,000,000. Sources added that earlier in years 2006 to 2009 the higher bracket was also introduced at the rate of 15 percent of income exceeding Rs 1,000,000, however, it was reduced on the pressure to 10 percent from higher bracket income earners.