Friday January 27, 2023

KP seeks abolition of Super Tax, ban on land acquisition by non-filers

May 25, 2018

PESHAWAR: Seeking abolition of the Super Tax and lifting of ban on the acquisition of immovable property and vehicles by non-filers, the Khyber Pakhtunkhwa (KP) government has asked for drastic changes in the overall tax regime to ensure due shares to the province in the federal proceeds.

The provincial government has submitted to the federal government a number of proposals to revise different taxes so that the public revenue could be increased and the burden of the common man reduced.

The proposals could not find a place in the final draft of the budget as the federal government approved the fiscal plan without taking into consideration KP government’s suggestions.

However, the provincial Finance Department vowed to keep pushing the proposals as these in the long run would benefit both the public exchequer and common people.

Secretary Finance Shakeel Qadir Khan confirmed to The News on Thursday that they had sought far-reaching changes in the tax regime to improve collection and secure KP’s shares.

The KP government in its observations on the recently approved next annual federal budget sought the abolition of the Super Tax and reduction in income tax on association of the persons and corporate sectors.

It also sought gradual reduction in the Sales Tax from 17 percent to 10 percent in the next five years. It asked the federal government to make the Health Levy on tobacco part of the divisible pool of the National Finance Commission (NFC).

The document shared with The News shows that the federal budget estimated the Health Levy at Rs10 per kg on tobacco which will be collected by Pakistan Tobacco Board (PTB) in the manner it collects Tobacco Cess.

It implies to tax or a levy on the un-manufactured tobacco causing injury to the health of the active and passive smokers across the country and the resultant expenditure on health is a provincial domain.

The document says the Health Levy is part of non-divisible pool which will go to the federation, while health (for which the levy is imposed) and the expenditures on it are the responsibility of the provinces.

The provincial Finance Department, therefore, suggested that the Health Levy should be made a part of divisible pool in terms of Article 160(3)(v) of the Constitution read with Article 3(1)(h) of the 7th NFC Award (President’s Order No 5 of 2010).

It says that the federal governed under 2018-19 budget is going to ban acquisition of immovable property and vehicles by persons who are non-filers of income tax returns which will adversely affect the provincial receipts on account of Stamp Duty, CVT, Motor Vehicle Tax, etc.

The KP Finance Department said it will encourage people to transact such deals against Powers of Attorney defeating the intent and purposes of federal government’s ban and, resultantly, cause loss of provincial receipts.

The document also sought abolition of the ban on acquisition of immovable property and vehicles because the restriction is already placed under the Income Tax Ordinance, 2001, by prescribing a higher rate of withholding tax for non-filers.

About the Sales Tax, it said that 17 percent standard rate of Sales Tax is too high, thus, encouraging evasion and under- declaration. Moreover, higher rate of indirect taxes (Sales Tax) causes disequilibrium in the desired ratio of direct taxes to indirect taxes. It revealed that despite the 17 percent statutory rate, the effective incidence of Sales Tax remains only at 5-6 percent.

It further says that the 2018-19 budget does not make any attempt at reducing the statutory rate of Sales Tax which should be brought down to 15 percent in the next financial year with gradual reduction of one percent every year thus bringing it to 10 percent in the year 2023-24.

The province has also asked the federal government to withdraw exemption of stationery items, arguing that the zero-rating on stationery items was withdrawn in the budget 2016-17 on the ground that it was widely abused by unscrupulous persons. It noted that the restoration of zero-rating on stationery item, as put down in the next budget book, implies restoration of frauds and high refunds. Therefore, it suggested that the facility should be done away with.

The rate of income tax on “individuals” has been drastically reduced and the rate of income tax on association of persons and corporate sector remained high. Moreover, the Super Tax imposed on large association of persons and corporate sector continues which tends to encourage fragmentation of the businesses and investments and hamper government’s efforts to encourage documentation of economy and regularization of business sector.

It, therefore, suggested that the Super Tax should be abolished forthwith and the rate of income tax on association of persons and corporate sectors should be reduced instead of gradual reduction of income tax and the Super Tax over a period of five years as proposed in the federal budget 2018-19.