Plan for more taxes, fewer subsidies in federal budget
ISLAMABAD:
The government has firmed up proposals for the 2010-11 federal budget envisaging introduction of value added tax, increase in tax rates or imposition of new taxes on nine major sectors and withdrawal of subsidies on seven major sectors, including wheat, sugar, fertiliser and electricity.
Documents available with Dawn include proposals, cleared by the revenue advisory committee and economic advisory committee, to increase next year’s revenue target to Rs1.7 trillion from current year’s Rs1.38 trillion. Prices of essential commodities will increase after the withdrawal or reduction of subsidies and new taxation measures will put additional burden on people.
The main focus will be on achieving four major strategic objectives — continued fiscal stabilisation and promotion of fiscal and debt sustainability, further mobilisation of revenue for accelerated growth and national development, utilisation of fiscal resources in priority areas of energy viability, investment in human potential through health and education and continued reform of budgetary management.
The government intends to achieve the objectives through taxation measures which include improving tax-to-GDP ratio, broadening tax base, encouraging corporatisation and documentation of economy and rationalising tax rates to ensure that people with less income are not affected and people earning more pay their due share.
Budget-makers have decided to impose capital gains tax on the stock market business and rationalise tax rates on imports. For the first time, the government has decided to take a pie out of banking sector profits by increasing tax rates by 2.5 per cent on banks with spread going beyond five per cent to discourage them charging higher interest on loans and paying paltry returns to depositors.
Tax rates on salaries and non-corporate income will be rationalised. Associations of persons will be taxed at the rate of 25 per cent. The rate of taxation on small companies will be increased from the current 20 per cent to 25 per cent.
The government has decided to impose five per cent withholding tax on purchase of air tickets for inland travels and rationalise various provisions of capital value tax. It has decided to withdraw over Rs60 billion subsidies on electricity tariff differential. The 15 per cent subsidy in lieu of general sales tax on electricity bills and tariff subsidy on agricultural tube wells in Balochistan would be abolished.
The subsidy on sugar and fertiliser will be withdrawn while subsidy on maintaining strategic wheat reserves will be reduced to 0.5 million tons.
After removal or reduction of subsidies on the seven sectors, the next year’s subsidy will be restricted to three sectors — interest on circular debt, arrears of petroleum differential claims, food and electricity tariff for Fata.
Revenue target
The Standing Committee on Finance was informed by the finance ministry that next year’s revenue target for the Federal Bureau of Revenue had been fixed at Rs1.7 trillion. The total revenue of the federal government has been estimated at Rs2.448 trillion.
The committee was also informed that VAT would be introduced from July and additional non-tax measures would also be taken. The provinces will be required to produce surplus of one per cent of GDP while Rs40 billion will be earmarked for pay and pension increases.
The committee was informed that grants on account of hydel profits and gas development surcharge would be provided to the provinces. Hydel profit grants to Khyber Pakhtunkhwa and Punjab are estimated at Rs25 billion and Rs6 billion, respectively.
Pakistan Railways will be provided Rs23 billion.
Grants for war on terror will cost the national exchequer Rs120 billion. The Benazir Income Support Programme and internally-displaced persons will get Rs40 billion each.
The textile industry will receive Rs20 billion grant.
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