The government may provide a major tax relief to the filers of income tax returns by withdrawing withholding tax on cash withdrawal from banks above Rs 50,000 for filers under the ''Finance Supplementary (Amendment) Bill, 2019.'' Sources told Business Recorder that the proposal to increase standard rate of sales tax from 17 to 18 percent has not yet been finalised. If any such proposal is considered by the government, it would generate huge revenue of Rs 30-40 billion per annum. However, the government has agreed to increase the rate of sales tax from 2 to 3 percent on supplies made to un-registered persons.
The budget preparation meetings would continue on Saturday (January 19) to consider different taxation proposals. Budget makers are reviewing the proposal to abolish withholding tax on such banking transactions for filers of tax returns. At present, 0.3 percent withholding tax is applicable on cash withdrawals from banks exceeding Rs 50,000 for tax filers. However, it has been proposed to continue to charge 0.6 percent withholding tax on banking transactions of non-filers of returns.
During the Last Supplementary Finance Bill, withholding tax rate under section 236P of the Income Tax Ordinance was rationalised and increased from 0.4% to 0.6% as was the case prior to the Finance Act, 2018 to encourage non-compliant taxpayers to join the tax net and supplement efforts targeted towards broadening of the tax base. Under the ''Finance Supplementary (Amendment) Bill, 2019,'' the budget makers are examining a proposal to reduce some income tax relief granted to the higher income earners within the salaried class.
As per last Supplementary Finance Bill, the tax slabs for individuals introduced through the Finance Act, 2018 resulted in a much lower incidence of tax upon affluent individuals earning high incomes and compromised on the core principle of progressivity and equity in taxation. In order to rationalise the tax rate on individuals and to ensure a progressively higher incidence of tax on individuals based on their "ability to pay" separate tax rates were introduced for both salaried as well as non-salaried individuals. Budget markers have also proposed revision in the minimum threshold of annual income tax slab down from Rs 1.2 million.
Another proposal under examination is to increase regulatory duty on the import of cars and mobile phones, sources said. The government is also considering increasing customs duty on import of petroleum products. The government may provide some relief to stock market by reducing advance tax on sale/purchase of shares which stands at present at 0.2 percent, while capital gain tax (CGT) may be rationalised, as at present there are different slabs on it depending on the duration of holding securities by the investors.
Sources said that the sales tax and withholding tax on used/second machinery may also be abolished. Minister for Finance, Revenue and Economic Affairs Asad Umar will present the ''mini-budget'' in the House on January 23. The Lower House of the Parliament would approve the bill after a detailed discussion without referring it to the National Assembly Standing Committee on Finance, Revenue and Economic Affairs as it has not been constituted so far.
The ''Finance Supplementary (Amendment) Bill, 2019'' would also be laid before the Upper House (Senate) of the Parliament for discussion and recommendations on the bill. Under the proposed ''Finance Supplementary (Amendment) Bill, 2019,'' the government is likely to introduce proposals to generate as additional revenue of Rs 150 billion with the objective of narrowing down over Rs 170 billion shortfall during the first half of the current fiscal year.
The government, sources stated, wants to support the export sector and customs duties on raw material being used by export industries are likely to be reduced in the ''Finance Supplementary (Amendment) Bill, 2019.'' The government may move certain items from lower slab of customs duty to higher slabs under Pakistan Customs Tariff with the possibility to bring certain items from the slab of 10 percent to 15 percent. The Federal Board of Revenue is finalising a list of items to be brought from lower slab to higher slab of customs duty.
The proposals under consideration included increase in sales tax on petroleum products, a raise in excise duty on cigarettes and vehicles (1600cc and above), increase in the rate of additional customs duty - from 2 to 3 percent - on imports and further increase in the rate of withholding taxes for non-filers. The government may increase sales tax on domestic supplies of five zero-rated sectors, fix tax regime for commercial/retail businesses to generate additional revenue and increase sales tax to standard 17 percent rate for 1-2 sectors where lower rates or special tax rates are applicable.
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