ISLAMABAD: Minister for Finance Ishaq Dar on Friday unveiled the Budget 2015-16 of Rs4.089 trillion in the National Assembly with budget deficit of 4.3 percent of the GDP whereby the government incentivised the rich and increased the tax burden on non-filers as well as enhancing burden on the poor through indirect taxation.
In his long speech, Dar announced a meager 7.5 percent increase in salaries and pensions arguing that inflation had come down below five percent.Two ad hoc allowances provided to public sector employees out of the total five will be merged into the basic pay scales.
To meet the enhanced revenue needs for the rehabilitation of Temporarily Displaced Persons (TDPs), the minister proposed to levy a one-time tax on affluent and rich individuals, association of persons and companies earning income above Rs500 million in the tax year 2015 at the rate of 4 percent of the income and for banking companies three percent of income.
The government proposed to increase the FED from 58% to 63% on cigarettes. For making the informal sector pay due taxes on cigarettes, adjustable FED is proposed to be levied on filter rods at 0.75 rupees per filter rod.
Dar also announced an allocation of Rs102 billion for the Benazir Income Support Programme (BISP) for providing support to five million families. A glance at the Budget 2015-16 shows that gross revenue receipts of the federal government for 2015-16 were estimated at Rs4,313 billion compared to the revised figures of Rs3,952 billion for 2014-15, showing an increase of 9.1 percent. “We have set an ambitious target for tax collection, as without collecting more taxes we cannot hope to increase development spending that is crucial for economic growth,” said the minister.
The share of provincial governments out of these taxes will be Rs1,849 billion compared to Rs1,575 billion revised estimates for 2014-15, showing an increase of about 17.4%.For the year 2015-16, net resources left with the federal government will be Rs2,463 billion compared to the revised estimates of Rs2,378 billion for 2014-15, showing an increase of 3.6 percent.
The total expenditure for 2015-16 is budgeted at Rs4,089 billion compared to the revised estimates of Rs3,902 billion for 2014-15, showing a meager increase of 4.8 percent, which is lower than the target inflation rate for 2015-16.
The current expenditure is estimated at Rs3,128 billion for 2015-16 against a revised estimate of Rs3,151 billion for 2014-15, showing an actual decrease in expenditure in nominal terms.
The development budget has been adequately funded in order to meet the investment requirements of a growing economy.
Against a revised estimate of Rs542 billion for the PSDP during 2014-15, and for 2015-16 the government budgeted Rs700 billion showing an increase of nearly 29 percent. This also includes the Special Development Programme for security enhancement as well as for rehabilitation and resettlement of the TDPs.
With the requirement of Rs1,328 billion to finance the budget deficit, the government would manage through domestic and external borrowings while the provinces would also provide a surplus of Rs297 billion or less than one percent of GDP to keep the deficit at the agreed level of 4.3 percent with the IMF.
On the expenditures side, interest payment on foreign and domestic loans would consume the highest amount of Rs1,280 billion, defence Rs781 billion, federal development Rs700 billion, running of civil government Rs326 billion and subsidies Rs138 billion.
For encouraging the sales tax registration and penalizing non-compliant businesses, rate of further tax is proposed to be enhanced from 1 percent to 2 percent.
Sales tax payable on various categories of imported mobile phones is proposed to be increased from 150, 250 and 500 rupees to 300, 500 and 1000 rupees respectively. On the implementation of new rates, RD imposed on import of mobile phones will be withdrawn.
For aerated waters are chargeable to FED at concessionary rate of 9 percent. It is proposed to increase this rate to 12%. Mark-up on housing loans obtained by individuals from banks and other institutional lenders for construction or buying a house is proposed to be allowed as a deduction against income up to 50 percent of taxable income or Rs1 million.
Capital Gains of any person who sells a property to a REIT development scheme formed for the development of housing sector is proposed to be exempt from income tax up to 30.6.2018.
It is also proposed that if an REIT scheme for the development of housing sector is set up by 30.6.2018, for the first three years the rate of income tax chargeable on dividend income of such REIT may be reduced by 50 percent.
In order to reduce the cost of construction, it is proposed that supply of bricks and crushed stone may be exempted from sales tax for three years up to 30.6.2018.
Rationalisation of sales tax rate on export-oriented sectors: The applicable rates on export-oriented sectors are 2 percent, 3 percent and 5 percent which are far below the standard rate of sales tax at 17 percent.
Certain irresponsible taxpayers are misusing this concessional tax regime. In order to curb this malpractice, it is proposed to rationalise the rates to three percent and five percent.
Dar said he would also like to announce that the refunds due to the export-oriented sectors relating to tax periods till 31st May, 2015 shall be issued by 31st August, 2015. Similarly, the value addition tax on commercial imports of these sectors is being reduced from 2 percent to 1 percent and 100 percent sales tax adjustment will also be allowed.
The minister said the government had decided to mobilise revenues on the broad principles including second phase of withdrawal of exemptions to further eliminate discriminatory tax exemptions and concessions, expand the scheme of differential taxation for filers and non-filers for penalising non-compliance without putting any further burden on the compliant, customs tariff be rationalised to reduce both the number of slabs and the maximum duty rate and reviewing tax laws and procedures to cut down on discretion.
The rate of Capital Gains Tax for the Tax Year 2015 has been increased to 12.5 percent for securities held up to one year and 10 percent for securities held for a period between one and two years.
In line with the policy of increasing rates in a phased manner, it is proposed to increase the rates from 12.5 percent and 10 percent to 15 percent and 12.5 percent respectively.
In addition, it is proposed that securities held for a period of more than two years and less than four years be also taxed, though, at a reduced rate of 7.5 percent.
It is proposed that the rate of tax in the case of non-filers be increased in the case of contractors by three percent, in the case of suppliers by two percent and in case of commission agents by three percent. The rate of tax on non-filer transporters is also proposed to be enhanced by various percentages.
It is proposed that adjustable advance income tax at the rate of 0.6% of the amount of transaction may be collected on all banking instruments and other modes of transfer of funds through banks in the case of persons who do not file income tax returns.
Presently, the tax rate of 35 percent is applicable to banking companies from all sources except income from dividend, which is taxed at various rates from 10 to 25 percent and income from capital gains which is taxed at a rate of 10 and 12.5 percent.
Accordingly, the rate differential for different sources is proposed to be removed and income of banks from all sources is proposed to be subjected to income tax at 35 percent.
The present rate of tax of 10 percent on dividend income is on the lower side as compared to most other countries. It is proposed that the rate be increased to 12.5 percent.
Consequently, in case of non-filers, the rate of tax is proposed to be increased from 15 percent to 17.5 percent of which five percent shall continue to be adjustable. For Mutual Funds, the existing rate of 10 percent shall continue.
Taxation of Capital Gains from trading of futures contracts: Capital gains derived from trading of commodity future contracts on Pakistan Mercantile Exchange (PMEX) is not exempt from tax. However, the traders are neither filing their returns nor any withholding tax is applicable on these transactions. It is proposed that advance adjustable income tax at the rate of 0.1 percent on each transaction may be introduced to be collected on every purchase and sale of futures contract.
At present, adjustable advance income tax is collected at the rate of 7.5 percent on domestic electricity bills above Rs100,000. Due to reduction in electricity prices, it is proposed that the threshold be reduced to Rs75,000.
It is proposed that a 10 percent withholding tax be imposed on renting out machinery and for use or right to use commercial, scientific or industrial equipment, in case of residents also, and be treated as final tax liability.
It is proposed that in the case of a public company other than a scheduled bank or a Modaraba, which does not distribute cash dividends within six months of the end of the tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of 100 percent of its paid up capital, the excess amount may be taxed at the rate of 10 percent.
On relief measures, the government reduced the corporate tax rate up to 32 percent in the budget 2015-16. In order to attract private sector investment in electricity transmission line projects, it is proposed to exempt profits and gains derived from transmission line projects for a period of 10 years, provided that the project is set up by 30th June, 2018.
On the demand of the provincial governments, the rates of adjustable advance income tax collected with token tax is proposed to be reduced by around 20 to 25 percent in the case of income tax returns filers.
The rate of adjustable advance income tax collected on transfer of vehicles is proposed to be reduced by around 75 percent in the case of income tax returns filers and also reduced by around one-third in case of non-filers.
Salaried taxpayers earning taxable income from Rs400,000 to Rs500,000 are chargeable to tax at the rate of five percent. To provide relief to this class, the rate of tax is proposed to be reduced to two percent.
Non-salaried individual taxpayers and association of persons earning taxable income from Rs400,000 to Rs500,000 are chargeable to tax at the rate of 10 percent. To provide relief to this class, the rate of tax is proposed to be reduced to seven percent.
Pakistan, the minister said, is poised to grow at an accelerating pace. At this stage of transition, we need to consolidate the recent gains, hasten the process of reforms and take required measures to enable some of those sectors that have not performed as per expectations.
Dwelling upon the dwindling exports, he said the main reason behind this was the major decline in global commodity prices, particularly those of cotton and rice.
The EXIM Bank of Pakistan will be helpful in enhancing export credit and reducing the cost of borrowing for exporting sectors on long term basis and help reduce their risks through export credit guarantees and insurance facilities. The bank will start operations in 2015-16.
Exports Refinance Facility (ERF): In the last budget, the government, through the State Bank of Pakistan, had arranged to reduce its mark-up rate on exports finance from 9.4 percent to 7.5 percent.
This rate was reduced in February 2015 to 6.0% and it will be further brought down to 4.5 percent from 1st July, 2015. For long term financing facility, the rate will be reduced to six percent from 7.5 percent.
Establishment of Pakistan Land Port Authority: Dar said the initiative for establishing the Land Port Authority of Pakistan was announced in the last budget.
“We have completed the requisite formalities for its formal launching. Meanwhile, we have invested Rs352 million for the establishment of infrastructure at the Torkham Border to enable it to operate under the conditions of a modern port environment.”
For the textile sector, the minister announced that the benefit of Drawback of Local Taxes & Levies Scheme shall remain available for textile exporters in the FY 2015-16 under which they shall be entitled to the drawback on FOB values of their enhanced exports if increased beyond 10% of their previous year’s exports, at per the rate of 4 percent for garments, 2 percent for made ups and 1 percent for processed fabrics.
For the agriculture sector, Dar said, the Credit Guarantee Scheme for Small and Marginalised Farmers announced in the last budget will continue. Under the scheme, the government, through the State Bank of Pakistan, will provide guarantee to commercial, specialised and micro finance banks for up to 50 percent loss sharing.
The scheme will cover farmers having up to 5 acres irrigated and 10 acres non-irrigated land holdings. It will benefit 300,000 farmer households/families with a loan size up to Rs100,000. Total disbursement under this scheme will be Rs30 billion while the government will have a contingent budget cost of Rs5 billion.
Prime Minister’s Youth Skills Development Programme: This programme intends to promote capacity building and giving employment to unemployed educated youth through training in 100 demand-driven trades across the country.
Until now, 25,000 youths have benefited from the said programme, whereas the process for training of another 25,000 is at an advanced stage.
For the year 2015-16, the programme is being extended to include Madrassah students, juvenile prisoners and the victims of terrorism. In total, Rs2 billion is being allocated in FY 2015-16 for the execution of Prime Minister’s Special Schemes.
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