Finance Minister Shaukat Aziz during his budget speech for 2004-05 on Saturday announced that relief on limit of taxable income has been proposed to be enhanced from Rs 80,000 to Rs 100,000 to offset adverse effect of inflation and provide relief to the lower income population.
He said that senior citizens have also been taken into consideration. "Our senior citizens with age of 65 years and above are allowed reduction in tax liability by 5 percent if their income does not exceed Rs 200,000. This limit is being proposed to be raised to Rs 300,000."
He said that technical education needed encouragement to quickly develop skilled and trained human resource. Significant skill gap is beginning to emerge in the economy. It should be filled.
To encourage the private sector to invest in technical, professional and polytechnic institutes, it is proposed to exempt income of vocational, technical or polytechnic institutions set up between July 1, 2004 to June 30, 2008 for a period of five years.
The minister said that elimination of mandatory payment in cases of disputes has been proposed to make availability of cheap justice.
He said that to achieve this purpose mandatory payment of 15 percent of disputed tax demand for filing the first appeal has been found to be the bottleneck in this process. It is, therefore, proposed to remove the condition of mandatory payment of tax, which would facilitate dispensation of justice.
Shaukat said that to provide an easy and efficient dispute resolution mechanism and to liquidate arrears of tax, an alternate dispute resolution forum is proposed by establishing Alternate Dispute Resolution Committee.
Professionals from the private sector, tax officials from the Income Tax Department would represent these committees.
This mechanism will work without affecting taxpayers'''' right of appeal to settle as many pending matters as possible.
He said that companies and associations of persons were required to pay advance tax in four quarterly instalments computed on the basis of tax turnover ratio for the latest tax year which invariably resulted in refunds and a burden on cash flow of business houses.
To overcome the problem it is proposed to allow payment of advance tax on estimated liability as opposed to tax turnover ratio, which is being done away with.
It has also been proposed to allow association of persons to pay advance tax on the basis of income assessed for the latest tax year and to bring them at par with the individuals for which the limit of assessed income for payment of advance tax is proposed at Rs 200,000.
He said that to encourage investment in stock market, the capital gains tax arising on sale of shares of listed companies Modaraba certificates and PTCL vouchers are exempted until 2005. With a view to further encouraging investment in the stock market it is proposed to extend the exemption to capital gains for further two years up to June 30, 2007.
Rationalisation of minimum tax for edible oil units has been proposed. Ghee/cooking oil units pay minimum tax at the rate of 3 percent on import of edible oil which is adjustable against final tax liability, but if the tax is less than 3 percent the minimum tax liability remain at 3 percent. It has been proposed to treat the same as final discharge of tax liability.
The minister said that to boost agriculture productivity reduction in the withholding tax on import of DAP from 6 percent to 1 percent and reduction in the withholding tax on import of tractors in completely built unit (CBU) condition from 6 percent to 2 percent has been proposed.
He said that to give incentive for investment in housing sector, it has been proposed that the withholding tax on income arising from property should be increased from Rs 200,000 to Rs 300,000.
To increase availability of consumer credit it has been proposed that banking companies are allowed to create reserve at the rate of 3 percent of their income arising out of consumer loans for allowing offset of bad debts. It has also been proposed to extend this benefit to NBFCs and HBFC.
The finance minister said that television and satellite channels transmit their programmes outside Pakistan through a transponder in space and the business activity is controlled and managed from outside Pakistan.
Payments for advertisements are made by local companies to these channels either through advertising companies or thorough their agents. It has been proposed to impose 5 percent withholding tax in respect of payment to non-residents on account of such advertisements as final discharge of tax liability.
Shaukat said that withholding tax on commission income of travel agents and insurance agents is presently imposed at 5 percent, which is adjustable towards final tax liability.
Moreover, no tax is collected on the commission income of petrol pumps operators. It has been proposed to collect advance withholding tax on their commission income at the rate of 10 percent. And treat the same as final rate of 5 percent on commission income of indenting commission agents, advertising agents and yarn agents, which is proposed to be collected as final discharge of tax liability.
It has also been proposed in the budget to provide relief from mandatory withholding tax on import of machinery by commercial undertaking, to help the newly established companies. It has been proposed to allow carry forward of unadjusted amount of minimum tax for a period of five years for adjustment against future tax liability. If the amount is not adjusted in the said period of five years it would automatically lapse.
In view of overall reduction in mark-up rates, the rates of additional tax for delayed payment of income tax and compensation for delayed payment of refunds is proposed to be reduced from 18 percent to 12 percent and from 15 percent to 6 percent, respectively.
The finance minister said that as a conscious policy, the government is promoting the industrial sector to combat unemployment in the country. Private sector has to shoulder greater responsibility in this regard.
The revival of sick industry is of immense importance in the present and future scenarios. The State Bank of Pakistan has allowed banks to write-off mark-up on debt as well as principal amount of non-performing loans of sick industries under its Circular No.29 of 2002. To ensure that the written-off amount of mark-up on debt is not again subjected to tax, specific provisions in law have been proposed so that the sick industries get real benefit of the SBP decision.
Salaried taxpayers having monthly income of Rs 50,000 or more are taxed at normal rates, whereby with the increase of only one rupee in salary, all the perquisites and allowances become subject to taxation at normal rates resulting in huge difference in tax liability.
This is impacting adversely on the incentives of highly qualified personnel contributing significantly towards the economic development of the country. Realising this ground reality, it has been proposed to allow some relief to such valued individuals so that taxation, while maintaining its progressive character, may not become an unbearable disincentive.
The minister said that to facilitate restructuring of the banking sector, amalgamation of banking companies and non-banking financial institutions under a scheme of amalgamation approved by the State Bank of Pakistan or by the Securities and Exchange Commission of Pakistan (SECP) certain incentives have been provided which included transfer and carry forward of losses, benefit of expenses and tax rates, etc. These incentives resulted in rapid consolidation of the banking sector.
These incentives, which were to expire on June 30, 2004, have been proposed to be extended for a further period of two years up to June 30, 2006. Similarly, it has been proposed to extend this scheme to the amalgamation of insurance schemes with similar benefits.
The budget proposal has introduced concept of group relief. He said that holding and subsidiary companies under the SECP law furnish group accounts every year as per the International Accounting Standards but unlike in the advanced countries the concept of "Group Relief" to set-off losses between group companies is not there in the Income Tax Law. As a major step towards strengthening corporate governance in the country it has been proposed to introduce the concept of "Group Relief", whereby a holding company acquiring or having 75 percent share capital of its subsidiary company can claim losses surrendered by the subsidiary for set-off against its income for a period of three years, provided the subsidiary company continues the same business for five years and the holding company retains 75 percent or more share capital for the same period.
Shaukat said that with the introduction of universal self-assessment scheme (USAS), certain information that are currently sought in the income tax return are no longer required. There were also requests from business and industry that the existing return needed further simplification and brevity.
To facilitate taxpayers, it has been proposed to introduce a new one-page return form, simple and easy to understand, with separate annexes for each source of income. Only those annexures, which are applicable to a taxpayer, shall be attached to the return.
The minister said that the daily turnover of shares on the stock exchange is around Rs 70 billion. Capital gains arising out of such shares are exempted from levy of income tax until tax year 2005, which is being extended for another two years in the budget.
In view of extensive tax-free income being generated in this business, it has been proposed to levy capital value tax on purchase of shares at the rate of 0.1 percent of the value of shares transacted.
At present, every non-salary individual is required to file a wealth statement along with his return of income irrespective of any income limit, whereas salaried individuals are not required to file this statement if their income is below Rs 200,000. It has been proposed to raise this limit to Rs 500,000 and make it applicable to non-salaried people also.
Comments
Comments are closed.