TAX NEWS - 2010

Pakistan Tax: Tax reforms, reduction in borrowing needed - Pakistan Taxation & GST

Winding up a two-week debate on the budget in the Senate, Sheikh proposed drastic cuts in public-sector borrowing, reforms to bring the affluent into the tax net through direct taxation and controlling inflation to give relief to the poor as pre- requisites of a good economic policy.

Pakistan Finance Minister Dr Abdul Hafeez Sheikh dismissed on Friday as 'mere politicisation' reports about withdrawal of subsidies on food items or any step introduced in the new budget that could hurt the interests of people or hike the prices of essential commodities.

Winding up a two-week debate on the budget in the Senate, he proposed drastic cuts in public-sector borrowing, reforms to bring the affluent into the tax net through direct taxation and controlling inflation to give relief to the poor as pre- requisites of a good economic policy.

"Subsidies have not been withdrawn but rationalised to ensure that their benefits reach the really deserving people," he said.

The minister said self-reliance could not be achieved unless all the stakeholders wholeheartedly and dedicatedly participated in the effort.

He admitted that the country's economic situation was grave. "If we shall not rise above our petty political interests, the future of our nation shall be at risk."

He contended that had the government not approached the International Monetary Fund, the country might have defaulted, which was not a good omen for a sovereign nation.

He assured the house that the government would give due consideration to the 74 recommendations on the budget, prepared by the Senate Standing Committee on Finance for sending to the National Assembly.

He said it was the first budget after the 18th Amendment and the 7th National Finance Commission Award, which had increased the role of the provinces manifold.

"The federation is left with limited fiscal space in the budget and will need to achieve greater fiscal autonomy, which will be a challenge keeping in view the difficult security situation with massive borrowing and poor tax collection," he said.


TAXATION: The finance minister said a decision not to increase any duty was aimed at providing relief to people.

"When there is inflation, we have two choices — to reduce prices or compensate through other means — and we have increased the salaries of government employees and allocations for the Benazir Income Sup- port Programme and Baitul Mal."

Mr Sheikh called for a national debate on subsidies to focus on relief to the poor and make them targeted.

He said the budget of the civil government was Rs165 billion, which was less than the expenses of the Pakistan Electric Power Company alone.

The minister said the capital gains tax was a direct tax on the affluent, which would be levied from July 1.


GST: Mr Sheikh said the government wanted to reform the general sales tax through documentation and removal of distortions because of which it had risen to 25 per cent in some cases. He said the government wanted the GST to remain at 15 per cent.

He reiterated the resolve of the government not to levy GST on food items, health and education, adding that the issue would be tackled in consonance with the provinces.

The house debated some recommendations from the opposition and the movers withdrew most of them on an assurance by the fin- ance minister for their consideration at the proper platform.

Prof Khurshid Ahmad, Ishaq Dar, Mushahidullah Khan and Afia Zia withdrew a proposal to lower the mark-up rate to 10 per cent.

A motion recommending an increase in minimum wages to Rs9,000 was withdrawn when the minister said it could affect industrial competitiveness and cause unemployment.

A proposal to revive the wealth tax was also not stressed.

Mr Dar said the tax, which fetched more than Rs15 billion, had been withdrawn by the Musharraf government.

Prof Khurshid said more than 80 taxes were paid by the lower strata of the society.