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ISLAMABAD: The Federal Board of Revenue (FBR) is preparing budget proposals based on “targeted taxation” for increasing the incidence of tax on sectors earning windfall profits including the banking sector, the edible oil industry, the steel sector, the tobacco industry, and beverages in the budget (2022-23).

Sources told Business Recorder here on Friday that the FBR has focused on huge profit-making sectors during the budget preparation exercise for the next fiscal year for realizing the full potential of tax.

The proposals are not made in isolation, but part of talks during the ongoing discussions with the stakeholders including international donors. Within the corporate sector, the sectoral-basis ‘targeted taxation” would be done in the coming budget. The direct taxation would be more in the budget as compared to indirect taxes.

The policy of targeted taxation has been adopted for 2022-23 to specifically target profit-making sectors for a specific time period.

The incidence of taxes would not be passed on to the consumers to avoid inflation, but “targeted taxation” is being considered during the budget preparation exercise. The FBR is also considering introducing special tax regimes for some profit-making sectors.

The full amount of tax is not coming as per the actual potential of these profit-earning sectors. The banking and edible oil sectors are earning huge profits, but the tax potential is much higher as compared to the actual payment of taxes by these sectors.

The benefits of the sector studies and sector-wise analysis would be yielded while finalisation of these budget proposals, the sources maintained.

According to sources, the taxation proposals for these profit-earning sectors would help the budget markers to avert possible heavy taxation on different slabs of the salaried class. There are 19 lakh salaried taxpayers and the demand is to generate additional Rs80 billion from the salaried class, earning Rs1 million to Rs6 million per annum.

Around 70 percent of the salaried taxpayers fall within the slabs of Rs1 million to Rs6 million per year. The FBR will go to any extent to avoid this measure of heavy taxation on the salaried class except for those earning very high salaries.

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Sources said the banking sector is paying four percent Super Tax. A proposal is under consideration to increase the rate of Super Tax on banks. The potential of tax from the banking sector is much higher compared to the profits earned by the banks. The proposal to raise Super Tax on banks would have a positive revenue impact on direct taxes collection next fiscal year.

Sources revealed that the budget makers are seriously considering to raise taxes on the edible oil sector, earning huge profits. The ghee and cooking oil industry is not paying taxes as per their actual potential and needs to be taxed. However, taxation would be done in a manner to tax their profits without increasing the prices of the finished products or the commodity.

The proposal is to impose at least Rs5 per liter or per kg tax on edible oil on the same price structure of ghee and cooking oil. The tax may be levied at the import stage in the form of advance tax, income tax or the Federal Excise Duty (FED).

Another proposal is to impose some kind of turnover based tax along with the sales tax/FED on the edible oil sector. The whole concept of the budget proposal is to tax the profits and earnings of the owners of ghee and cooking oil units and not the final products consumed by the general public.

The budget proposal would directly impact the manufacturer or producer but not the end consumer of the product. Another aspect of this “targeted taxation” is to impose taxes on the edible oil sector that would be non-inflationary to avoid any impact on the general masses, the sources said.

Referring to the steel sector, sources said that the steel sector is earning huge profits but paying less taxes as compared to its actual potential.

The prices of steel products have been considerably raised during the last 1-2 years. There are massive misdeclarations and under-declarations in the steel sector resulting in low payment of taxes.

The FBR is making budget proposals to increase the incidence of taxes, particularly sales tax on the steel sector from 2022-23. The same policy of taxing the profits and earnings of the steel sector would be considered to avoid indirect taxes on the finished steel products.

Moreover, the minimum value of supply of locally-produced steel goods for the purpose of payment of sales tax on ad valorem basis would also be examined for the steel sector.

As far as beverages are concerned, the focus of the budget proposal is to tax the profits of the sector and increase the amount of income tax from the beverage sector instead of raising the FED on finished products. The FBR will prefer proposals of direct taxation on the beverage sector to avoid the imposition of taxes like FED on beverages and juices.

Sources said that the FBR is reviewing various proposals for increasing taxes on the tobacco sector. One of the proposals is to collect the whole amount of taxes at the stage of the purchase of tobacco. The second proposal is to raise the FED on different tiers of cigarettes having minimum retail price.

Another proposal is to collect taxes at the level of Green Leaf Threshing (GLT) units, whether working separately or as part of a cigarette manufacturing unit.

Copyright Business Recorder, 2022

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