FBR''s proposals dropped: one percent surcharge, raise in WHT on imports

The government has dropped the proposals of the Federal Board of Revenue (FBR) to impose one percent import surcharge and 2 percent increase in withholding tax on imports due to possible violation of the World Trade Organisation (WTO) regime.
Sources told Business Recorder here on Saturday that the FBR had drafted the proposals of one percent import surcharge and 2 percent increase in withholding tax on imports along with the proposals of 10 percent income tax surcharge and increase in the rate of the special excise duty (SED) from one percent to 2 percent as part of fiscal measures for revenue generation.
During review of proposals between the tax authorities and the Finance Ministry it was considered that WTO approval may be required for imposition of one percent import surcharge and 2 percent increase in withholding tax on imports. Keeping in view the WTO issues, the FBR has restricted its proposals to income tax surcharge and the SED for consideration and subsequently Finance Amendment Bill was introduced in the Parliament.
According to sources, the FBR had also proposed import surcharge as a measure to generate additional revenue. But the proposal was not considered in view of possible violation of the World Trade Organisation (WTO).
Under the WTO regime, the imposition of surcharge has been discouraged at the import stage. The customs duty on the import of a specific item should not exceed the ''bound rate'', which is maximum rate of import duty that could be imposed under the tariff lines of Customs Tariff. It has been internationally committed to not exceed tariff rates beyond a certain limit under the ''bound rate'' to check extraordinary increase in the rate of customs duty on the import of a specific item.
Recently, the Federal Board of Revenue (FBR) had proposed 15 percent income tax surcharge and increase in the rate of special excise duty (SED) from one percent to 2.5 percent under the new taxation measures to meet the revised target of Rs 1,630 billion for 2010-11. The revenue target of Rs 1630 billion could be achieved in case the taxation measures are implemented from April 2011. The taxation and administrative measures would generate around Rs 46 billion in the remaining months of current fiscal year.
The 15 percent flood surcharge on withholding tax and advance tax would generate Rs 27 billion. The increase in the rate of the SED from 1 percent to 2.5 percent would generate additional revenue of Rs 9 billion. The broadening of tax base would generate an additional amount of Rs 5 billion and recovery of arrears would help in collecting Rs 5 billion during remaining months of 2010-11. These proposed revenue and administrative measures would help in collecting nearly Rs 46 billion, if implemented from March 1, and Rs 26 billion in case of implementation from April 1, 2011.