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Incentives reversed, tax burden increased/By:Mubarak Zeb Khan

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ISLAMABAD: The new government has reversed some incentives given to business enterprises and individuals through the Finance Act 2018. It has also enhanced the burden of taxes on some specific sectors to raise additional revenue for achieving the revenue collection target for the current fiscal year.

Cigarettes, tobacco, vehicles, mobile phones and several other sectors have been subject to additional tax measures. However, the minimum threshold remained unchanged for salaried and business individuals.

The government has introduced new policy measures, including but not limited to revenue measure, of around Rs103 billion along with an additional Rs75bn worth measures bracketed as ‘administrative measures’, according to a highly placed FBR source. The relief measures – mostly customs exemption on raw materials – have been estimated at Rs5bn.

The government has revised upwards the federal excise duty (FED) on cigarettes and tobacco. This measure will help to pocket an extra amount of Rs26bn. The duty impact of FED on price per 20-pack of cigarettes will be Rs12.5 for tier-1 brands and Rs11 for tier-3 brands. For tier-2, the impact would be around 7 paisas only. Impact on tier-3 brands is more as enhancement in duty is more due to low existing rates.

FED was also enhanced on unmanufactured tobacco produced by Green Leaf Threshing (GLT) units from Rs10 per kg to Rs300 per kg, which is adjustable against FED on cigarettes. GLT units will be subject to staff supervision to prevent leakages. Moreover, unmanufactured tobacco can only be sold to registered persons on active taxpayers list.

The regulatory duty was imposed on 312 new tariff lines — luxury and non-essential items — in the range of 5-20 per cent.

Similarly, the rate of regulatory duty was enhanced to 15pc from 10pc on 295 tariff lines and different slabs were introducing for mobile phones imports. These three measures will help the Federal Board of Revenue pocket additional revenue of Rs14bn.

FED on cars of 1800cc and above was increased to 20pc from 10pc. This will help raise additional revenue of Rs2.5bn.

At the same time, government has withdrawn the requirement for filing return for acquisition of real estate and motor vehicle.

The withholding tax on banking transactions for non-filers has increased to 0.6pc from 0.4pc. The transactions include sale of instruments such as demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveller’s cheques, etc in excess of Rs50,000 per day (in aggregate) from all bank accounts. This measure will help generate Rs8bn revenue for the government. The tax was also enhanced to 0.6pc from 0.4pc for non-filers on transfers of funds through banking instruments.

The government has rationalised the tax concessions given to salaried and business individuals to raise an amount of Rs27bn. The previous government has announced approximately Rs90bn relief measures to salaried and business individuals.

According to the amendments, in the case of salaried individuals seven tax slabs have been introduced through the Finance Supplementary (Amendment) Bill 2018. A nominal tax rate of Rs1,000 and Rs2,000 has been imposed upon taxable income(s) ranging from Rs400,001 to Rs800,000 and Rs800,001 to Rs1,200,000, respectively.

In addition to the above, four tax slabs ranging from 5pc to a maximum of 25pc have been introduced for salaried individuals. It would be pertinent to mention that there shall be no enhanced tax burden upon salaried individuals deriving monthly income of up to Rs200,000, whereas in the case of the remaining salaried individuals the tax burden shall be lower than the tax in vogue till June 30, 2018.

The maximum tax rate for non-salaried/business individuals was reduced from 35pc to 15pc through the Finance Act, 2018. The prevailing tax rate for companies is 29pc, therefore the large gap in tax rates between corporate and business individuals is likely to discourage and disincentive corporatisation of businesses.

In the case of non-salaried individuals, eight tax slabs have been introduced. As in the case of salaried individuals, a nominal tax rate of Rs1,000 and Rs2,000 has been imposed upon taxable income(s) ranging from Rs400,001 to Rs800,000 and Rs800,001 to Rs1,200,000, respectively.

In addition to the above, five tax slabs ranging from 5pc to a maximum of 29pc have been introduced for non-salaried individuals. It would be pertinent to mention that there shall be no enhanced tax burden upon non-salaried individuals deriving monthly income up to Rs200,000 whereas in the case of remaining non-salaried individuals the tax burden shall be lower than the tax in vogue till June 30, 2018.

In order to alleviate the hardships of taxpayers who have been automatically selected for audit, a one-time amnesty was offered to such taxpayers to revise their tax liability at 25pc higher than their declared tax liability and communicate their option of paying 25pc higher tax vis-à-vis their declared tax liability to the concerned commissioner for closure of audit.

In cases where there is nil tax liability, a taxpayer can avail this one time option upon payment of tax equal to 2pc of the turnover of the declared turnover and in case no turnover is declared, upon voluntary payment of penalty for late filing of return under section 182 of the Ordinance.

Exemption has been accorded to the Diamer-Bhasha and Mohmand Dams Fund from all taxes including withholding tax, minimum tax on turnover and deduction of tax on non cash banking transactions.

In order to support the value-added export sector, customs duty is being reduced on certain industrial inputs so as to decrease manufacturing costs. A total of 129 tariff lines have been considered for the purpose. Of these, overall duty was reduced to 5pc from 10pc on 46 tariff lines, while 34 tariff lines were exempted from customs duty. The total revenue impact of these measures is estimate at Rs4bn.

The exemption list of items relating to cardiac surgery and other cardiac procedures was further expanded. Presently, there are 48 entries/item categories in the exemption list. Further, 52 items were included in the exemption list which include equipment for various procedures, stents, catheters, balloons, wires, etc

The duty was rationalised on LED/SMD lights. Exemption is now restricted to local supplies of LED/ SMD lights meant for conservation of energy. The reduced rates will now be made available only on supplies of RLNG/LNG to gas transmission and distribution companies.

Through the Finance Act, 2018, the import and supplies of potassium chlorate were subjected to composite rate of sales tax i.e. 17pc + Rs40 per kg. Now this rate has been revised upwards to 17pc + Rs65 per kg.

Published in Dawn, September 19th, 2018Incentives reversed, tax burden increased

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