TAX NEWS - JUNE 2010
Pakistan Tax: Pakistan Budget Includes New Taxes
The projected fiscal deficit in 2010-11, which begins on July 1, is PKR685bn (USD7.8bn), or 4% of gross domestic product (GDP), compared with the deficit in 2009-10 which is expected to be 5% of GDP. Total tax revenues next year are projected to remain at around 11% of GDP.
The government has also given itself three-year fiscal targets within a Medium-Term Budgetary Framework. Under that framework, the fiscal deficit is forecasted to reduce to 3.7% and 3.2% of GDP in 2011-12 and 2012-13 respectively. Tax revenues as a percentage of GDP are expected to be 11.7% and 12.3% in the same years.
Given those targets, the government is looking both to the reform of current taxes, to increase their efficiency, and also to new taxes in order to broaden the country's tax base.
For example, the Finance Minister reaffirmed that the government is committed to reform of the existing general sales tax (GST) into a value added tax (VAT). He said that the GST "has degenerated into an unfair tax, with multiple rates (between 16% and 25%), exemptions and domestic zero rated facilities for vested groups and the privileged. It has also contributed greatly to the opportunities for corruption and rent seeking."
The proposed VAT, he continued, "will eliminate multiple tax rates and replace it with a single lower rate of 15%; will not apply on health, education and food items consumed by the poor; will not apply to turnover less than PKR7.5m per year (the current threshold is PKR5m per year); and will be automated, thus reducing the possibilities for corruption and refund delay.
He reiterated that the VAT (Value Added Tax) would broaden the tax base instead of burdening existing taxpayers, thus introducing greater equity into the tax system. He expected the VAT will be in place by October 1, 2010, in consultation with all the provinces and other stakeholders. This is, effectively, a delay from the start date of July 1, as previously promised to the International Monetary Fund.
Meanwhile, as an interim measure, the general sales tax (GST) rates are proposed to be raised by 1%. Once the VAT is in place, the proposed single lower rate of 15% will become effective.
In addition, an accompanying relief measure of the general sales tax (GST) reform will be the abolition of the current 1% special excise duty presently levied on most imports and locally manufactured goods. He confirmed that no customs duty on any product will be increased and, for twenty nine categories of products, customs duties will be simplified and reduced.
A number of relief measures in income tax have also been proposed. The exemption limit for salaried taxpayers is to be enhanced from PKR200,000 to PKR300,000, benefiting around 430,000 taxpayers. In addition, the exemption limit for non-salary income is proposed to be raised from PKR100,000 to PKR300,000 per year, benefiting approximately 350,000 taxpayers.
Furthermore, the rate of income tax collected along with monthly electricity bills from industrial and commercial consumers is proposed to be reduced from 10% to 5%, providing relief of PKR4.5bn to 66,000 taxpayers, and the taxation of interest free/concessionary interest loans provided by an employer is proposed to be waived.
It also announced that, in order to incentivize foreign investment, a number of steps will be taken. For example, the rate of final withholding tax on non-specified payments to non-residents is to be reduced from 30% to 20%; a 5% tax credit will be allowed to a company in the tax year of its stock exchange listing; and a 10% withholding tax is to be instituted as the final charge on profits on investments in general debt instruments and government securities.
There will, however, be a short-term capital gains tax (CGT) on stocks and shares charged at 10%, where the shares are held for a period less than six months, and at 7.5%, where they are held for more than six months and less than 12 months. Stocks held for over one year will not be subject to capital gains tax (CGT).
Finally, amongst other miscellaneous tax measures, the withholding tax rate payable by commercial importers is proposed to be increased from 4% to 5%; a withholding tax on banking transactions, including withdrawals, will be charged at 0.3% where such transactions exceed PKR25,000 in any one day; the turnover tax on loss making companies and 'associations of persons' is proposed to be increased from 0.5% to 1%; and there will be a tax on domestic air travel at 5% on the gross value of the ticket.
© 2009-2012 TaxRates.cc
2011 - 2012 Tax Rate Guide and Tax Help Website
