Direct, indirect taxes likely to increase in FY22 budget


ISLAMABAD: With the federal budget scheduled to be announced on June 11, top tax officials are still debating the fate of key revenue measures, a well-placed source in the Revenue Division familiar with the matter told Dawn on Wednesday.

Contrary to the repeated claims of the government’s economic team that the upcoming budget would be tax-free, in reality the budget is expected to place substantial direct and indirect tax burden on the common man.

The Federal Board of Revenue (FBR) has been tasked to collect an additional revenue of over Rs1 trillion in budget 2021-22 over the current fiscal year’s collection. This additional revenue will be achieved through the withdrawal of exemptions in sales tax, income tax, minimising concessionary tax rates as well as through growth in economy and inflation.

It is expected that the revenue collection for the outgoing fiscal year might reach closer to Rs4.7tr. The International Monetary Fund (IMF) is asking Islamabad to propose higher than Rs5.8tr revenue collection target for FY22.

The IMF wants Islamabad to go for withdrawal of maximum exemption rather than banking on a notion to raise revenue through administrative measures. On the revenue side, talks with the IMF are continuing and most likely to reach an understanding on the tax measures issues.

IMF for over Rs5.8tr revenue collection target

The cabinet meeting, to be chaired by Prime Minister Imran Khan, will give a final nod to the revenue proposals, which in some cases are politically sensitive. However, a string of proposals is also on agenda to reduce further Customs Duty on raw materials, semi-finished products, especially for the value-added textile sector.

As part of facilitation, the government is considering lowering rates on the entire textile industry value chain and especially fabric to promote value-added textile exports from the country. Similarly, the government may also reduce duty on raw materials for the steel sector. This will be an unprecedented package for the value-added sector.

Three broader pillars on which the budget is premised include no new tax, expansion of base and documenting e-commerce under the tax net. To avoid public resentment, the word ‘new tax’ is interpreted as if no new sector will be brought under the tax net in upcoming budget.

Technically, all sectors of the economy either attract standard or lower rates or are placed in the exemption list. Corporate exemption worth Rs140 billion introduced through a Presidential Ordinance will now be made part of Finance Bill 2021.

On the income tax side, there is a strong resistance to make any changes in the slabs or tax rates for the salaried and non-salaried individuals. Few more income tax exemptions from the second schedule are under consideration.

It has been proposed to document sales of 60,000 to 70,000 large retailers by bringing them under the point of sales. The FBR proposed a string proposal to document payments made through debit or credit cards.

At the same time, measures are proposed to effectively tax e-commerce a new area, which is highly untaxed.

Pakistan has reached an understanding with the Fund that tax rates will not be changed in those areas where there is a fear of rise in inflation. Under this parameter, the government will not withdraw exemptions in the upcoming budget on those items related to food, health and education.

Published in Dawn, June 10th, 2021

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