Pakistan budget 15-16 focuses on taxation

*Rs 253 billion new taxes imposed in budget for 2015-16*Rs 120 billion exemptions given under different SROs in customs, sales and income tax withdrawn

 

Presenting the budget, Finance Minister Ishaq said total resources have been estimated at Rs 4.168 trillion and the government has to bear the deficit of Rs 1.328 trillion despite imposing new taxes of Rs 253 billion during the next fiscal year. He said an estimate for the current expenditures during the next fiscal year is Rs 3.128 trillion while the revised estimates for the outgoing fiscal year are Rs 3.151 trillion. The deficit is likely to stay at 4.3% of the GDP for the coming financial year, down from 5% in 2014-15.
Laying budgetary proposals before the National Assembly, Dar said the key to reaching next year’s targets will be broadening the tax base. He said the government considers tax increase a pre-condition for the economic growth, but maintained that the burden of changes would not fall on the poor. He said the government will seek to end tax exemptions which are common and look at ways of punishing those who dodge taxes.
To discourage undocumented economy, the minister said, it has been decided that 0.6% withholding tax would be imposed on fund transfers and banking instruments. However, the tax payers who file their annual returns will be exempted from this tax. He said the tax rate on dividend is being increased from 10% to 12.5%. However, the tax rate on mutual funds will remain 10%.
He said that 10% advance income tax which was being received on the electricity bills of more than Rs 100,000 will now be imposed on the bills up to Rs 75,000.
The minister said the rate of federal excise duty on cigarettes is being increased from the existing 58% to 63%. Sales tax on import of different varieties of mobile phones is being increased by 100%.
He said exemptions worth Rs 120 billion given under different SROs in the realms of customs, sales tax and income tax are being withdrawn. He announced that the power of FBR to issue SROs is being withdrawn and now this power would be used by the federal government in special circumstances.
The minister announced a package of incentives for construction sector. Bricks and crush is being exempted from sales tax for three years so as to bring down the cost of construction.
The minister said target for GDP growth rate for the next fiscal year has been kept at 5.5% which would be taken to 7% by 2017-18. Inflation would be kept to single digit, investment-to-GDP ratio at 21%, fiscal deficit 3.5% and tax-to-GDP ratio at 13%. He said foreign exchange reserves would be maintained at the minimum of $20 billion.
The minister announced a PSDP amounting to over Rs 1.513 trillion. Out of this, Rs 700 billion has been earmarked for the development projects to be carried out by the federal government, while Rs 814 billion will be disbursed among the federating units for their development programmes.
Dar announced 7.5% increase in the salaries of federal government employees besides merger of two previous ad-hoc relief allowances into the pay scales. Medical allowance has been increased by 25% and minimum wages have been increased from Rs 12,000 to Rs 13,000 for the labour class.
He said an amount of Rs102 billion has been allocated for the Benazir Income Support Program (BISP). He said the Baitul Maal budget was being doubled from Rs 2 billion to Rs 4 billion.

 

The government on Friday presented budget for the fiscal year 2015-16 with a total outlay of Rs 4.451 trillion, 12.8% higher than the 2014-15 outlay of Rs 3.945 trillion.

 

Presenting the budget, Finance Minister Ishaq said total resources have been estimated at Rs 4.168 trillion and the government has to bear the deficit of Rs 1.328 trillion despite imposing new taxes of Rs 253 billion during the next fiscal year. He said an estimate for the current expenditures during the next fiscal year is Rs 3.128 trillion while the revised estimates for the outgoing fiscal year are Rs 3.151 trillion. The deficit is likely to stay at 4.3% of the GDP for the coming financial year, down from 5% in 2014-15.
Laying budgetary proposals before the National Assembly, Dar said the key to reaching next year’s targets will be broadening the tax base. He said the government considers tax increase a pre-condition for the economic growth, but maintained that the burden of changes would not fall on the poor. He said the government will seek to end tax exemptions which are common and look at ways of punishing those who dodge taxes.
To discourage undocumented economy, the minister said, it has been decided that 0.6% withholding tax would be imposed on fund transfers and banking instruments. However, the tax payers who file their annual returns will be exempted from this tax. He said the tax rate on dividend is being increased from 10% to 12.5%. However, the tax rate on mutual funds will remain 10%.
He said that 10% advance income tax which was being received on the electricity bills of more than Rs 100,000 will now be imposed on the bills up to Rs 75,000. The minister said the rate of federal excise duty on cigarettes is being increased from the existing 58% to 63%. Sales tax on import of different varieties of mobile phones is being increased by 100%.
He said exemptions worth Rs 120 billion given under different SROs in the realms of customs, sales tax and income tax are being withdrawn. He announced that the power of FBR to issue SROs is being withdrawn and now this power would be used by the federal government in special circumstances. The minister announced a package of incentives for construction sector. Bricks and crush is being exempted from sales tax for three years so as to bring down the cost of construction.
The minister said target for GDP growth rate for the next fiscal year has been kept at 5.5% which would be taken to 7% by 2017-18. Inflation would be kept to single digit, investment-to-GDP ratio at 21%, fiscal deficit 3.5% and tax-to-GDP ratio at 13%. He said foreign exchange reserves would be maintained at the minimum of $20 billion.
The minister announced a PSDP amounting to over Rs 1.513 trillion. Out of this, Rs 700 billion has been earmarked for the development projects to be carried out by the federal government, while Rs 814 billion will be disbursed among the federating units for their development programmes.
Dar announced 7.5% increase in the salaries of federal government employees besides merger of two previous ad-hoc relief allowances into the pay scales. Medical allowance has been increased by 25% and minimum wages have been increased from Rs 12,000 to Rs 13,000 for the labour class.
He said an amount of Rs102 billion has been allocated for the Benazir Income Support Program (BISP). He said the Baitul Maal budget was being doubled from Rs 2 billion to Rs 4 billion.
Dar said under the PM Youth Business Loan Scheme, 15,000 loan applications have been approved while 20,000 applications are under consideration. He announced to provide internship to 50,000 unemployed graduates having education of 16 years during the next fiscal year. He said under the scheme, Rs12,000 will be given as stipend to the internees. He said under the PM Laptop Scheme, 70,000 laptops have been disbursed among the students, which will continue in the next fiscal year. He said for all these schemes, Rs 20 billion are being allocated.
The minister said the government believes in the promotion of education and ensure raising its standard. For this purpose, Rs 20 billion is being allocated for 143 projects of the Higher Education Commission, besides allocating Rs 51 billion for the HEC for current expenditures. The government, Dar said, had announced a special package for textiles sector in the budget 2014-15. The facilities announced in the package shall remain available for the textile sector during the FY 2015-16.
Agriculture remains a major focus of our government despite the devolution of much of the operational responsibilities to the provinces, he added.
He said that the credit guarantee scheme announced in the last budget has been made operational and under the scheme, the government, through the State Bank of Pakistan, will provide guarantee to commercial, specialized and micro finance banks for up to 50% loss sharing.
“We have given boost to agriculture credit, as we know the role of credit in enhancing the output of agriculture. During the year, we had targeted a credit flow of Rs.500 billion, compared to Rs.380 billion during 2013-14, an increase of 32%”, he added.
Dar said under the Prime Minister’s Health Insurance Scheme, tertiary health care would be covered with the premium cost of Rs 9 billion during 2015-18. Initially, he said, the scheme would be launched in 23 districts and coverage for hospitalisation for several diseases and the project coverage would be gradually increased to 60% of the poorest segments of population over the next three years.
The minister during the next fiscal year, the mark-up rate for borrowers was being lowered from 8% to 6%, a reduction of 2%, and under the Prime Minister’s Interest Free Loan Scheme, interest free loans of Rs 50,000 average size were being made available to the men and women from households with a score of up-to 40 on the Poverty Score Card (PSC) and with little or no access to banks or microcredit institutions.
For shares sold after two years, the rate of tax would be 7.5%. Previously, shares sold after a holding period of two years were exempted from tax. For shares sold between 1-2 years, the rate would be 12.5% — increased from 10%. While, for shares sold within a year, the rate would be 15%.
He said the government had introduced a policy of reducing corporate income tax rate by 1% annually from 35% until the tax rate was reduced to 30%.
He said in order to attract private sector investment in electricity transmission line projects, it was proposed to exempt profits and gains derived from the same for a period of 10 years, provided that the projects were set up by 30th June, 2018. He said to encourage investment in new companies quoted on stock exchange, it was proposed that this limit be enhanced to 1.5 million. He said to encourage enlisting of companies on stock exchange, it was proposed that the credit be enhanced to 20%. He said on the demand of provincial governments, the rates of adjustable advance income tax collected with token tax was proposed to be reduced by around 20 to 25% in the case of income tax return filers.
Announcing relief for small taxpayers, Dar said the tax rate for salaried taxpayers earning taxable income from Rs 400,000 to Rs 500,000 was proposed to be reduced from 5% to 2%. Similarly for non-salaried individual taxpayers and association of persons earning taxable income from Rs 400,000 to Rs 500,000, the tax rate was proposed to reduce from 10 % to 7%, he added.
Regarding tariff reforms, the minister said last year, tariff reforms were initiated and the maximum slab of 30% was reduced to 25% which resulted in reduction of tariff slabs from 7 to 6. This year, he said, it was proposed to further reduce the maximum rate from 25% to 20%. It would bring down the number of slabs from 6 to 5. “We are also determined to reduce the slabs to 4 by the year 2016.”
He said sales tax payable on various categories of imported mobile phones was proposed to be increased from Rs 150, 250 and 500 to Rs 300, 500 and 1000 respectively.
He said the applicable rates on export oriented sectors were 2%, 3% and 5% which were far below the standard rate of sales tax @ 17%. In order to curb the malpractices, he said, it was proposed to rationalize the rates to 3%, 3% and 5%. He said it was proposed that if a company, being a manufacturer, were set up during next three years and employed more than 50 employees duly registered with Social Security and Employees Old Age Benefit Institution, an employment tax credit equal to 1% of the income tax payable for every 50 employees might be provided to the company, subject to a maximum of 10%.
He said for import of solar panels exemption from sales tax and customs duty in this manner might be extended for one year to June 30, 2016.
He also proposed to grant exemption, for 5 years, to industrial undertaking engaged in the manufacturing of equipment, plant and items required to produce solar and wind energy. He proposed that for new industrial undertakings engaged in setting up and operating cold chain facilities, and setting up and operating warehousing facilities for storage of agriculture produce, income tax holiday for three years might be granted if they were set up before 30th June, 2016.
He said in order to provide relief to rice exporters, it was proposed that rice mills might be exempted from minimum tax for the Tax Year 2015.

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