Tax on luxury items imposed to discourage imports: Dar

ISLAMABAD: Minister for Finance Ishaq Dar said on Thursday that the government was going to increase the regulatory duty on luxury items for discouraging their imports and would announce fixed income scheme up to Rs25,000 in a bid to bring traders under the tax net.
The minister expressed these views during the proceedings of the National Assembly’s Standing Committee on Finance which met here at the Parliament House.
On increasing the regulatory duty on luxury imported items, the minister said that despite a decline in overall imports, the imports of luxury items were increasing, so there was a need to discourage this trend.
Dar made deliberate efforts to build his case for unveiling the upcoming mini budget in which the government was going to impose taxes worth Rs40 billion to avoid the shortfall in achieving the desired revenue collection target of Rs3,104 billion. Despite an overall reduction in imports, the imports of luxury goods have significantly increased and the government is seriously considering managing this trend, said Dar. “One obvious option is increasing duties,” he added.
The government is all set to increase duties currently covered under the Statutory Regulatory Order 568. Dar said due to reduction in commodity prices, the government was expecting $3 billion to $4 billion less import bill but this is not materialising due to an increase in imports of luxury goods. He termed imported cheese and butter as luxury goods.
Dar also said that the government could announce a special scheme for traders to bring them under the tax net, as the business community was not ready to come to the net despite the fact that the government had imposed only 0.3 percent withholding tax on banking transactions.
“I am prepared to have a separate block of new assesses (income tax return filers) who will be offered to come into the tax net by paying a nominal fixed income tax, may be up to Rs25,000,” said Dar. He said the fixed tax rate will depend upon the size and location of the shop.
He said the fixed tax will be still less than the amount that the traders are currently paying in bribes to lower staff of the Federal Board of Revenue (FBR) and to lawyers to keep the tax authorities away. He said in case no agreement is reached with the traders, the government may further extend the date for filing income tax returns, which is ending on November 30.
Dar said if the traders accept his offer, at least five million new people can come under the tax net as against the current level of less than one million income tax filers.
Dar said that 0.3 percent withholding tax rate is helping to penalize non-filers of the income tax returns and the levy will help force them to come into the tax net. He claimed that in last four months, about 100,000 more people came in the tax net.
The minister said a group of traders wanted to whiten hidden assets by exploiting the opportunity but they should know that it was not a tax amnesty scheme.that it is not tax amnesty scheme. He said during negotiations the traders admitted that they had parallel undocumented bank accounts at the name of their drivers and cooks. He said if the traders agree to his proposal, the government will bring a bill in the Parliament to give legal cover to the scheme.
Dar also made his plan public to settle the outstanding tax refunds of roughly Rs200 billion. A mechanism can be agreed where refunds may be cleared over a period of two to three years and the taxpayers will be compensated by paying them about 7 percent in profit on delayed payments.
On devaluation, he said without naming the IMF that “the idea that Pakistan’s rupee against the US dollar was overvalued by at least 10 percent is an imported one and is pushed by someone else”. Dar said that he had told them in front of the prime minister that the market forces would determine the value of exchange rate and had nothing to do with the desire of anyone. Contrary to the IMF assessment that Pakistani rupee was overvalued by 10 percent, the minister opined that the rupee was actually undervalued by at least 8 percent.