Less taxes, more relief

ISLAMABAD: The government has jacked up both additional customs duty and further tax by 1 percent each as well as imposed withholding tax on payments remitted abroad through credit cards as major revenue spinners in the budget 2018-19.

In the Finance Bill 2018 introduced by the government before the Parliament on Friday by newly-sworn-in Minister for Finance Miftah Ismail, the government also increased the Federal Excise Duty (FED) on cement from Rs1.25 per kg to Rs1.50 per kg and also enhanced tax rates for three tier slabs of cigarettes. The rate of sales tax for steel sector is being increased to Rs13 per unit of electricity consumed from earlier rate of Rs10.50 per unit.

In an electioneering year, the FBR has claimed doling out net relief measures in taxes to the tune of Rs91.179 billion in the budget 2018-19. Total taxation measures taken by the government through the Finance Bill 2018 in all major taxes were projected to fetch Rs93.320 billion while relief measure would cost the national exchequer Rs184.499 billion so the net negative revenue impact would be standing at Rs91.179 billion.

Among major revenuemeasures, the additional customs duty will be enhanced from 2 to 3 percent on all 7,200 tariff lines except where exemption is available.

Banks issuing credit/debit cards will now be obliged to collect 1% advance tax from filers and 3% advance tax from non-filers in respect of credit/debit card transactions resulting in outward flow of remittances from Pakistan.

“We will generate Rs28 to Rs30 billion with increase in additional Customs Duty by one percent,” Chairman FBR Tariq Pasha along with his team briefed reporters in technical briefings here after announcement of budget 2018-19 at FBR’s headquarters on Friday.

The government decided to continue three tier slabs for cigarettes but enhanced the rate of Federal Excise Duty under which for tier-1, the rate of FED has been enhanced from Rs 3,740 to Rs 3964, for tier-2 the FED jacked up from Rs1670 to Rs 1770 and for third tier the rate proposed enhancing from Rs 800 to 848. “We expect that with this increase in FED rate the FBR will be able to collect Rs 107-108 billion in next fiscal” said Chairman FBR Tariq Pasha.

On relief side, the government has reduced sales tax on fertilizer from maximum 11 percent to 2 percent, feed gas from 10 to 5 percent and RLNG for fertilizer from 5 to zero percent, restore zero rating for stationary, announced incentive package for film and cinema industry by reducing tax rates and above all reduced income tax rates significantly.

In order to achieve FBR’s tax collection target of Rs4435 billion for next fiscal year, the direct taxes will fetch Rs1735 billion and indirect taxes Rs2700 billion so reliance on indirect taxation will continue to persist in the coming financial year.

The government has abolished 3 percent value added tax on secondhand clothing and shoe in the budget. On Regulatory Duty on 731 tariff lines, the FBR has proposed reduction in RD rates on 100 tariff lines and enhanced rate on another 100 tariff lines so adjustments were made on 200 tariff lines while remaining tariff line remained unchanged.

On mobile phones, the RD was reduced from Rs250 per set to Rs175 per set in the budget. In a bid to provide relief to individuals (including salaried individuals) the maximum tax rate for all individuals has been reduced to 15% and five taxable slabs for all individuals have been introduced including a nominal tax slab of Rs1000 for persons earning income exceeding Rs400, 000 up to Rs800,000 and another nominal income tax slab of Rs2000 for persons earning income exceeding Rs800,000 up to Rs1,200,000.

The corporate tax rates shall be reduced from 30% in Tax Year 2018 to 25% in Tax Year 2023.The corporate tax rate will be 29% in Tax Year 2019 and will be reduced by 1% each year up to Tax Year 2023. i.e the corporate tax rate shall be 29% for Tax Year 2019, 28% for Tax Year 2020, 27% for Tax Year 2021, 26% for Tax Year 2022 and 25% for Tax Year 2023. In order to ensure fair and equitable treatment and to encourage businesses formed as AoPs the highest tax rate for AOP’s has been reduced to 30%.

The rate of super tax for both banking as well as non-banking persons shall be reduced by 1% for each successive year starting from the financial year 2018-19. In order to incentivise investment and setting up of industrial undertakings/manufacturing concerns such tax credits are being extended for two more years up to 30th June, 2021.

In a bid to make the mechanism of Alternate Dispute Resolution (ADRC) effective, the decision of the ADRC committee has been made binding upon both the taxpayer as well as the department pursuant to withdrawal of appeals by the taxpayer as well as the department. The composition of the members of ADRC shall also be changed to enable retired high court justices and tax professionals to be included in the committee in addition to representatives of FBR. Remuneration for the members of the ADRC shall be as prescribed under the Income Tax Rules, 2002.

In order to facilitate taxpayers who may be subjected to audit repetitively, FBR in its audit policy has announced that a taxpayer shall not be selected for audit by the Board more than once in three years through computer ballot. However, under section 177 of the Ordinance the Commissioner may also select a case for audit in successive tax years on the basis of reasons to be recorded in writing.

Withholding tax on banking transactions has been reduced from 0.6 to 0.4 percent. In order to provide relief to withholding agents the minimum threshold of tax deduction on goods and services has been enhanced three-fold from Rs10,000 to Rs30,000 in the case of payments for provision of services and from Rs25,000 to Rs75,000 in the case of payments for supply of goods.

In order to encourage and promote film-making in Pakistan, 50% tax rebate shall be allowed to foreign film makers making films in Pakistan and a 50% tax reduction in income tax liability shall be allowed to companies deriving income from film making for a period of five years.

Various allowances being given to Armed Forces Personnel i.e kit allowance, ration allowance, special messing allowance, SSG allowance, Northern Areas Compensatory Allowance, special pay for Northern Areas and Height Allowance are being exempted from income tax.

For sales/supplies, the rate of tax for non-filers has been increased from 7% to 8% in the case of companies and from 7.75% to 9% in the case of persons not being companies. For contracts, the rate of tax for non-filers has been increased from 12% to 14% in the case of companies and from 12.5% to 15% in the case of persons not being companies.

In order to improve and streamline the collection of this tax, marriage halls are now 23 required to collect either 5% of the bill or Rs20,000 per function in major cities and Rs10,000 per function in the remaining cities , whichever is higher. The FBR has restricted capital gain on gift from relatives and such non-recognition shall now be restricted to gifts given to “relatives” of an individual as defined in section 85(5) of the Income Tax Ordinance, 2001.

At present, Oil Marketing Companies (OMC’s) selling petroleum products to a petrol pump operator deduct tax @ 12% from filers and 17.5% from non-filers on commission or discount allowed to a petrol pump operator. As the prices of high speed diesel are to be deregulated tax on dealers margin shall now be collected on ex-depot sale price of HSD (excluding dealers margin) at the rate of 0.5% from a filer and 1% from a non-filer.

Non-filers shall be prohibited from purchasing property having declared value exceeding Rs.4 million. Non-filers shall not be permitted to purchase new motor vehicles manufactured in Pakistan or new imported vehicles.

Customs Duty: To standardize printing and preservation of Holy Quran, import of duty free paper weighing 60 g/m2 is allowed besides extending this facility to Nashir-e-Quran registered with the government The government reduced Custom Duty (CD) on Multi-ply and Aluminum foil from 20% to 18% for Liquid Food Packaging Industry, finished rooms (Pre-fabricated structures) from 20% to 10% for setting up of new hotels/motels, CD exempted on bovine semen, and preparations for making animal feed reduced from 10% to 5% and import of fans for corporate dairy farmers allowed at concessionary rate of 3%, reduction of CD on growth promoters premix, vitamin premix, Vitamin B12 and Vitamin H2 for poultry sector from 10% to 5%.

To encourage local manufacturing of Optical Fiber Cables, CD on input materials i.e, Optical fiber (20%), Cable filing compound (11%), Polybutylene (20%), Fiber reinforced plastic (20%) and Water blocking/ swellable tape (11%) reduced to 5% besides reduction of RD on Optical Fiber Cables was reduced from 20% to 10%.

The CD on specified equipment used in cinema industry reduced to 3% and withdrawal of 11% CD on acrylic tow. The FBR enhanced CD on double-sided tape from 3% to 11%, increase of CD on rickshaw tyres from 11% to 20%, Soya bean oil from Rs.9050/MT & Rs.10200/MT to Rs.12000/MT and Rs13,200/MT respectively, increase duty on aluminum auto parts scrap from 30% to 35%.