Wealth tax restoration: RAC forms panel to consider pros and cons

The Revenue Advisory Council (RAC) has constituted a high-level committee headed by the Federal Board of Revenue Member Inland Revenue Khawar Khurshid Butt to consider the pros and cons of wealth tax restoration.
Sources told Business Recorder on Wednesday that a decision to this effect was taken in the RAC meeting chaired by Dr Hafiz Pasha. The committee has been constituted by Dr Pasha to examine the implications of wealth tax restoration on the economy.
The committee would comprise members including Karachi-based leading chartered accountant Syed Muhammad Shabbar Zaidi, Shahid Hussain private sector expert, FBR Member Legal Muhammad Aqil Usman, Director General Broadening of Tax Base Shahid Hussain Asad, Aftab Ahmed, Chief Income Tax Policy and Arshad Zuberi from Business Recorder.
The committee will submit its report within 2 weeks to the RAC for further necessary action, sources added. Sources said the meeting also discussed the issue of restoration of the wealth tax for generating revenue from owners of assets. One of the key members of the RAC has proposed restoration of wealth tax. It was proposed that restoration of wealth tax is the one of the options available to the government to collect maximum tax from the properties owned by the rich class. The Wealth Tax Act was abolished in 2002-03 and its restoration could generate additional revenue.
However, some members of the RAC strongly objected to the proposal with the argument that wealth tax imposition would result in flight of capital. There are many negative implications of restoration of wealth tax including transferring of investment/cash abroad by industrialists, etc.
After detailed discussion, the RAC has constituted a committee comprising FBR Members including FBR Member Inland Revenue to review the pros and cons of the proposal to restore wealth tax. The revival of wealth tax would also be examined in the backdrop of the 18th Amendment under which taxation of property has been transferred to provinces. The FBR has already transferred the capital value tax on immovable property to provinces, as the taxation of property is a provincial subject. The restoration of wealth tax would be examined keeping in view the provisions of the 18th Amendment. It would be examined whether the wealth tax could be restored after 18th Amendment, sources added.
Some members of the Revenue Advisory Council (RAC) have conveyed to the Federal Board of Revenue (FBR) that the tax machinery might be able to achieve Rs 1530-1535 billion target under the current circumstances against the projected figure of Rs 1600 billion during 2010-11.
Sources said the meeting of the RAC was convened at the FBR Headquarters, which was chaired by Dr Hafiz Pasha. The meeting was also attended by Finance Minister Abdul Hafiz Sheikh for sometime at the FBR along with FBR Members and private sector experts as members of the RAC. On the conclusion of the meeting, members of the RAC went to the finance ministry where policy issues including broadening of the tax-base was also discussed between the ministry of finance and the FBR high-ups.
According to sources, the head of the RAC was of the opinion that the FBR may not be able to cross the figure of Rs 1588 billion by the end of current fiscal year. However, some members of the RAC pointed out that it would be very challenging for the FBR to reach the figure of Rs 1530-35 billion in 2010-11. They were of the view that the original budgetary target of the FBR was set at Rs 1667 billion for 2010-11. Later, the target was revised downward to Rs 1604 billion and further slashed to Rs 1600 billion.
The FBR team of tax managers headed by FBR Chairman Salman Siddiqui informed the RAC that the FBR is confident that it would cross the figure of Rs 1588 billion as substantial amount is expected from stuck-up arrears in courts and enforcement/administrative actions in the remaining period of current fiscal year. Moreover, a huge amount of revenue is expected in the last quarter (April-June) 2010-11. The FBR will generate around Rs 53 billion through the imposition of the income tax surcharge, enhancement in the rate of the SED from 1 to 2.5 percent and withdrawal of exemptions.
Sources said Finance Minister Abdul Hafiz Sheikh also showed confidence in the FBR for crossing the psychological barrier of Rs 1588 billion by the end of current fiscal year. The RAC has also decided that the exercise of broadening the tax base would be done in an organised manner to bring potential persons into the tax net. The cross matching of information would be done to bring undocumented persons on the tax roll of the FBR by issuing National tax Numbers (NTNs) to enforce filing of returns.