Finance Minister Senator Ishaq Dar is to announce Rs 108.5 billion new revenue measures in Federal Budget 2013-14 on Wednesday (today). Official documents obtained from the Finance Ministry reveal that the revenue impact of sales tax through Finance Bill has been calculated at Rs 19.5 billion, sales tax through notifications at Rs 19 billion, sales tax through enforcement Rs 22 billion, steps already taken Rs 17 billion and Federal Excise Duty (FED) through Finance Bill Rs 29 billion.
Most of the proposals were finalised on June 2, 2013 at a high level meeting convened to give a final shape to the revenue measures, said an official close to the Finance Minister. According to the documents, the Finance Minister will announce withdrawal of exemption on supplier against international tender. This step is being taken on the request of local bidders who argued that supplies against international tender may be taxed at standard rate to allow level playing field against international competitors. The impact of this measure is expected to be Rs 3 billion. Dar will announce imposition of 2 percent further tax on supplies to unregistered individuals aimed at incentivising registration as well as documentation of the economy. Financial impact of this measure has been calculated at Rs 5 billion.
Extension of items chargeable to sales tax on retail price basis (3rd schedule) is also part of the new revenue measures. It will cover the value of addition of whole supply chain and help control consumer prices. The Finance Minister expects Rs 8 billion revenue from these measurers. The Finance Minister will also announce withdrawal of undue sales tax exemptions on items such as imports of official vehicles of President, Prime Minister and Governors, etc, and milk preparations. Its financial impact has been calculated at Rs 1 billion.
Dar will announce levy of additional sales tax at 5 percent on non-registered commercial and industrial connections of electricity and gas with billed amount exceeding Rs 15,000 pm. Fiscal impact of this measure is expected to be Rs 2.5 billion. The government will generate revenue of Rs 7 billion on withdrawal of zero-rating on local supplies of non-export oriented sectors eg cheese, cream, yogurt, packed milk, processed meat, writing/drawing instrument, exercise books, soyabean meal, colours, sewing machines, etc.
Another Rs 7 billion revenue will come from withdrawal of exemption under the PM package for 13 districts of Khyber Pakhtunkhawa (KPK), FATA & PATA. These regions enjoy complete FED exemptions and 50 per cent sales tax exemptions leading to distortions. Similar income tax exemptions have already expired. The government will withdraw undue sales tax exemptions on imports by Pakistan Film Producers Association and supply by BOC to Pakistan PTA. This measure will have negligible financial impact.
The government is also expected to earn Rs 2 billion through restricting scope of reduced rate of sales tax in five export oriented sectors to items mostly used in these sectors by excluding items of multiple use and finished articles. Expansion in withholding regime of sales tax is also on the cards according to which all registered individuals withhold full amount of sales tax on purchases from unregistered individuals. The Finance Minister hopes that this step will incentivise registration as well as lead to documentation of the economy. The financial impact of this step will be Rs 3 billion.
The government is expecting revenue of Rs 15 billion from electronic monitoring of manufacturing/production of taxable goods and stocks positions through digital video, tax stamps, labels and stickers etc. The Finance Minister will also announce enhancement and roll out of crest to all sectors, financial impact of which has been calculated at Rs 5 billion. The government will earn revenue of Rs 3 billion through provisions of blocking/roll-back of refunds and input tax by FBR in case of tax fraud, dummy units, purchases from suspended/ blacklisted persons etc.
The FBR will place registered persons in jurisdiction of field offices where manufacturing facility is local to enable proper monitoring. Financial impact of this measure has been calculated at Rs 1 billion. The financial impact of measures already taken by the FRB has been estimated at Rs 17 billion. The government will earn Rs 12 billion revenue through rationalisation of structure and rates for cigarettes by replacing current three tier system with specific tier system.
The Finance Minister will also announce revision of FED rates of sugar. All products are chargeable to sales tax at 16 per cent or FED at 16 per cent but preferential treatment has been extended to sugar by imposing FED at 8 per cent. This rate will be revised to standard rate. Financial impact of this measure will give additional revenue of Rs 10 billion. Finance Minister will also announce rationalisation of FED rates on edible oil/ghee industry. Imported edible oil is chargeable to FED at Rs 1 per kg while there is no FED on locally produced edible oil and oil extracted from imported oil seeds. FED at Rs 1 per kg on locally produced edible oil will be imposed. Its impact has been calculated at Rs 2 billion.
Dar will announce rationalisation of rates for beverages industry. Rate of FED on aerated beverages was reduced from 12 to 6 per cent which has created distortion in the industry. Rate of FED on aerated beverages will be revised to 9 per cent. Financial impact of this proposal will be Rs 2 billion.
Imposition of FED on installed spout basis in beverages industry to provide level playing field is also part of the additional revenue measures. The capacity based FED will be in lieu of both sales tax and FED on beverage concentrate and aerated water with 25 per cent increase over net collection of current financial year with no input tax adjustments. Lower rate of duty, however, will be imposed on local brands. Financial impact of these measures has been calculated at Rs 4.5 billion.
The government will generate Rs 2 billion additional revenue through imposition of FED at 16 per cent on all kinds of financial services eg Easy Paisa, Mobicash, ATM withdrawal fee and asset management companies, etc. The financial impact of imposition of FED at 16 per cent on import and local manufacture of cars of 1800 cc or above has been calculated at Rs 1 billion.
RELIEF MEASURES: The Finance Minister will announce reduction of duty on water treatment and purifying machinery and equipment. The government maintains that impure drinking water is a major source of illness and fatality in the country and needs immediate attention of the government to redress the situation. Presently filtering & purifying water machinery attracts 25 percent customs duty under PCT 8421.2100 which is not financially affordable for the investor/industry. Similarly, environmental concerns emanating out of increased industrialisation and urbanisation need immediate attention of the government and calls for increased investment in this area. In order to provide pure drinking water and to control environmental pollution Finance Minister will propose that customs duty on the import of filtering & purifying water machinery falling under PCT 8421.2100 may be brought down from 25 percent to 15 percent. Revenue impact of this measure will be (negative) Rs 200 million.
The Finance Minister will announce following enforcement measures in the federal budget speech: (i) restricting the scope of existing exemption only to agriculture machinery to check its misuse by other sectors; (ii) change in procedure for exemption to tourism industry; (iii) withdrawal of concession on packing material imported fruit exports; and (iv) monitoring and streaming the concessions available to the pharma sector.
Tariff rationalisation would include: (i) creation of separate PCT code for Suv in petrol version; (ii) creation of separate PCT code for cargo mini van and for passenger mini van above 800 cc; (iii) creation of separate PCT code for three wheelers cargo loader; and (iv) creation of separate PCT for electric bikes and electric vehicles. The government is expecting Rs 4.5 billion revenue from already discussed proposals.
Sources stated that agriculture sector being the backbone of economy of Pakistan it has been an area of primary focus for the government. Hence, the government offered various incentives to the importers of agriculture machinery, equipment and other agriculture related items. Presently under Sr. No 1 SRO 575(1)/2006, dated 5.6.2006, agriculture machinery and equipment regardless of the fact that the same is manufactured locally or not is exempt from custom duty. Scrutiny of import clearance data reveals that the exemption has been misused by other sectors including construction sector. Hence, the facility of 0 percent customs duty is not availed by the sector, for which the benefit is meant. In order to thwart any attempts of misuse in future FBR has proposed that a condition may be inserted against Sr. No 1 in column (5), of SRO 575(1)/2006, dated 5.6.2006, "if used for agriculture sector". Financial impact of this measure will be positive.