July issue 2009

By | Business | News & Politics | Published 11 years ago

Pakistan has one of the lowest tax-to-GDP ratios in the world: it stands at only 9% of the GDP. This fact was confirmed by the State Minister for Finance Hina Rabbani Khar in her budget speech in the National Assembly, but her presentation did not exactly state how to increase it, as only 0.6% growth in the tax-to-GDP ratio is projected for the next fiscal year. In the Federal Budget 2009-10, the government has fixed a target of only 9.6% tax-to-GDP ratio, which means that the existing taxpayers have to pay more.

During the last fiscal year, the Federal Board of Revenue (FBR) gave a very dismal performance. The tax collection target fixed by the FBR was Rs 1,250 billion and, according to FBR figures, it collected only Rs 989.096 billion during the first 11 months of the fiscal year (July 2008-May 2009). The economic survey also indicated the gloomy performance of the tax collectors in the country. Economists believe that the government, instead of increasing the tax net, collected further revenues from the existing taxpayers.

Despite the dismal performance of the FBR, the government has raised the target for tax revenue collection by 15.7% to Rs 1.3775 trillion.

The major component of the richest class, the big landowners, are still not directly taxed. Even though agriculture is considered a provincial subject, no measure has been taken by the provinces to bring the agricultural elite into the tax net. Before the budget, the government was talking about introducing a service tax on properties and stock brokers, but there was no mention of such measures in the budget. The government only enhanced the Capital Value Tax on property from 2% to 4%. Similarly, stock brokers’ fees have only been nominally increased in the new budget.

The government has proposed many changes in the existing tax structure. The existing petroleum development levy has been abolished. Instead, the government has proposed to impose excise duty on petroleum products in the shape of a carbon surcharge. In her revised budget package on June 22, Khar announced an exemption for the CNG sector from the levy of carbon surcharge. However, the carbon tax will still apply to other petroleum products.

The government has made changes to the income tax code to provide relief to the salaried people. The limit for the exemption on income tax for salaried males has been enhanced from Rs 180,000 to Rs 200,000, whereas salaried females would enjoy an exemption upto an annual income of Rs 260,000. Senior citizens will now enjoy 50% relief in their tax liability in case of income upto Rs 750,000; previously this limit was Rs 500,000.

Earlier, the government had imposed a 20 paisa Federal Excise Duty (FED) on every Short Messaging Service (SMS) of cellular companies, but on June 22 this fee was withdrawn. However, to cover the losses, the ministry has increased the additional FED on cellular services from 19% to 19.5%. Under the revised budget, the withholding tax on the manufacturers has been lowered to 3% from 4% for industrial imports.

This article appeared as a sidebar in Budgeting in Times of Turmoil.

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