59. – To provide relief to the unemployed youth,
exemption from collection of advance tax on vehicles leased under the Prime
Ministers Youth Loan Scheme is proposed.
60. Relief on Education Expenses- In order to provide relief on education
expenses which are unbearable for low income groups, individuals having taxable income less than Rs. 1 million were given tax relief equal to
5% of school fee up to Rs. 60,000 per child per annum in the
Budget for 2016-17.The threshold for availing deduction
for education expense is proposed to be enhanced upto taxable income
of Rs 1.5M per annum. This will provide added relief for
medium income groups.
61. Enhancement of Threshold for Payment of Advance Tax- At present every
individual deriving income above Rs 500,000 is required to pay
advance tax in four installments on the basis of tax paid for the
last tax year. This threshold of Rs 500,000 is in place since 1st
July 2010 and is now proposed to be enhanced to Rs.1, 000,000 in
order to facilitate small taxpayers.
62. Enhancing the Limit of Raw Material Importable under Exemption
Certificate- The limit for importing raw material by
manufacturers through exemption from income tax at import stage
is proposed to be enhanced from 110% of the quantity imported in
the last year to 125% of the quantity imported in the last year
to promote industrial expansion and facilitate industry.
63. Enhancement of limit on sale promotion expenses
by pharmaceutical sector- In the Budget of 2016-17 a limit of 5%
of turnover was placed for sale promotion expenses by
pharmaceutical sector. This has caused hardship for the sector
and stopped its growth. Therefore, the limit of 5% is proposed
to be enhanced to 10% of turnover.
64. Reduction of withholding tax rates on Fast Moving
Consumer Goods- Distributors of Fast Moving Consumer Goods are
operating at low profit margins and therefore minimum tax u/s
113 is chargeable at reduced rate of 0.2%. However, FMCG
distributors were subject to normal rate of withholding tax
on their supplies. In Budget 2016-17 Withholding tax rate on
supplies for distributors of FMCG, was reduced from 4% to 3%
for companies and from 4.5% to 3.5% for others.
The withholding tax rates are still on the higher side and
are therefore, proposed to be reduced Reduction from 3.5% to
2.5%. There will be no reduction on the rates for non-filers.
65. Facility of Revision of Withholding Tax Statement- On the
demand of withholding agents they are being granted the right
to revise their withholding tax statements in the case of any
error or omission within 60 days of filing the statement.
66. Right of Appeal against Orders Passed due to Non-Filing
of Returns- Under the current law in case of non-filing of
return a provisional assessment order is issued by the department
and the tax becomes payable after 45 days. Taxpayer cannot file
an appeal against such order. On the demand of taxpayers and
to address the genuine grievances in hardship cases, this system
is proposed to be done away with. It is proposed that instead
of provisional assessment order an appealable order may be passed
on default of non-filing of return.
67. Tax Credit on Enlistment in Stock Exchange- In the Budget
for 2016-17 20% tax credit on tax payable for enlistment in
stock exchange was made available for 2 years instead of 1 year.
SECP has commended this measure and has recommended that in order
to make this measure really successful credit at a reduced may also
be made available for the next two years. It is accordingly
proposed to allow tax credit at a rate of 20% for the first two years of
enlistment and at a rate of 10% for the succeeding two years.
68. Enhancement of Exemption Limit for Withholding Tax
on Insurance Premium- In order to broaden the tax base and
to encourage compliance with tax laws, adjustable withholding tax
at the rate of 1% on life insurance premium to be collected
from non-filers was introduced in the Budget for 2016-17. This
withholding tax is collectable only if annual premium is not less
than Rs. 200,000. On the demand of the insurance sector the basic
limit is proposed to be enhanced to Rs. 300,000. The filers will
continue to remain exempted from this withholding tax.
69. Exemption to Income of certain Non-Proft Organizations- Gulab
Devi Chest Hospital, Pakistan Poverty Alleviation Fund and
National Academy of Performing Arts are Non-Profit Organizations
engaged in philanthropic and social welfare sectors. Their
income is proposed to be exempted from income tax by inclusion of
their names in Clause (66) of Part I of the second schedule to
the Income Tax Ordinance 2001.
REVENUE MEASURES
70. I will now present the revenue measures proposed to be taken
under the Income Tax law.
71. Enhancement of Tax Rate on Dividend- Flat rate of 12.5% is
proposed to be enhanced to 15% flat rate- Reduced rates of tax
for certain types of dividend will remain unchanged. Rates for
dividend paid by mutual funds are also proposed to be enhanced
from existing 10% to 12.5% in line with the increase on general
dividend.
72. Rationalization of Slab Rates for Interest Income- Interest
income is subject to progressive rates of 10%, 12.5% and 15%
for interest income upto Rs. 25 Million, between Rs 25 Million and
Rs. 50 Million and above Rs. 50 Million respectively. It is
proposed to maintain the existing rates but the slabs on
which they are to be made applicable are proposed to be changed to
upto Rs. 5 Million, between Rs. 5 to Rs. 25 Million and above Rs.
25 Million respectively. This will increase progressivity of the
taxation of interest income and make the taxation more equitable.
73. Rationalization of Taxation of Capital Gain on Securities-
The existing three tier rate structure for capital gain tax on
securities is proposed to be replaced with a single rate of 15%
for filers and 20% for non-filers for simplification and promotion
of stock market transactions. This will remove the incentive for
holding the securities for longer periods just to reduce incidence
of taxation and promote the transactions in stock exchange.
74. Withdrawal of Tax Credit on Sales Made to Sales
Tax Registered Persons- Currently tax credit @ 3% of tax
liability is available to all manufacturers who make 90% of their
sales to Sales Tax registered persons. It is proposed to withdraw
this tax credit as it has not achieved its desired objectives and
is being used a means of getting tax break of 3% without
any consequent benefit in the form of increase of sales tax registration.
75. Extension in Super Tax- in the budget for the financial year
2015-16 a tax on the income of the affluent and
rich individuals, association of persons and companies earning
income above Rs. 500 million at a rate of 4% of income for
banking companies and 3% of income for all others was levied. This
tax was extended for one more year through Budget for the
year 2016-17. Since the circumstances that necessitated this
measure are still continuing, it is proposed to extend this measure
by one year for tax year 2017.
Mr. Speaker,
76. Taxation for Not Distributing Dividend- The government in an
attempt to ensure that the small shareholders get return
on their investments and to protect interest of shareholders
by encouraging companies to distribute dividend, through budget
2015-16 made an amendment in Income Tax Ordinance 2001 to provide that
any public company which has derived profits for the year but
does not distribute cash dividends within six months of the end of
the tax year or distributes dividends to
such an extent that its reserves remain are in excess of 100% of its
paid up capital, the excess amount shall be taxed at the rate of 10%.
77. Presently, there is exemption from tax on undistributed reserves
if the lesser of at least 40% of after tax profit or; 50% of the
paid up capital, is distributed as dividend. SECP has pointed out
that the latter condition of distributing 50% of the paid up
capital has minimized the effectiveness of this provision and
the desired objectives are not being achieved. Therefore, on the
recommendations of the SECP this condition is proposed to be omitted.
It is also being proposed that if profits are not distributed, 10%
tax shall be levied on the profits for the year and not on
the reserves.
78. Increase in the Rate of Minimum Tax on Turnover- The
government has progressively reduced the rate of Corporate Tax
to encourage the taxpayers to declare their actual profits. However,
it has been observed that profit declarations have not improved and
a large number of companies and other businesses are still
paying only minimum tax on their turnover. The rate of
minimum tax on turnover is proposed to be increased from1% to
1.25%. This will encourage the organized and compliant sector in
whose case the rate will be reduced from 31% to 30% and
to create disincentive for entities not declaring their actual profits.
79. Withholding Tax at the Time of Collection of Tobacco
Cess- Production and sale of illicit and non-duty paid
cigarettes has assumed threatening proportions.
Non duty paid cigarettes not only cause loss of revenue but also
pose a serious health risk due to lack of quality controls
and regulatory oversight. Government is taking several initiatives
to curb the sale and production of illicit tobacco products. In
order to document sale of tobacco so as to get information regarding
the persons engaged in production of cigarettes and the extent
of their production, it is proposed that Pakistan Tobacco Board
or its contractor for collection of tobacco cess shall
collect withholding tax @ 5%, at the time of collecting cess on tobacco.
Mr. Speaker,
80. Taxation of Builders & Land Developers- On the
recommendation of association of builders and developers and in
order to bring this sector in to tax net and to eliminate disputes
a final tax regime on the basis of fixed tax per unit area was
announced for builders and land developers in the last budget but
it failed to achieve the desired results and is proposed to be withdrawn.
81. Enhancing the Rate of Withholding Tax on Sale of Electronic
Goods to Retailers- At present withholding tax at the rate of 0.5% is
to be collected by dealers, distributors and wholesalers of
electronics at the time of sale to retailers. On the demand
of Electronics Retailers Association the rate is being increased to 1%.
82. Differential Tax rates for non-filers- Present Government on
the demand of taxpayers introduced the policy of higher rates
of withholding tax for non-filers in order to penalize the
persons staying out of tax net and to provide an incentive for
joining the tax net. The policy paid dividends and the number of
return filers increased from 750,000 to 1,225,000 in three years.
As a continuation and further strengthening of the policy, the
rates of withholding taxes for non-filers on payments
received for contracts, supplies and services, payments
to non-residents, rental income, prizes on prize bonds and lotteries, commission, sale by auction, collection on gas bill of CNG stations
and sale by manufacturers and commercial importers to
distributors, dealers and wholesalers are proposed to be
further enhanced. The withholding tax rates for filers will
be maintained and there will be no increase for filers.
83. Non-Profit Organizations – At present if non-profit organisations
do not spend more than 75% of their income on charitable
and welfare activities, they lose the status of
non-profit-organisation and their entire income is taxed at
30%. To remove this hardship it is proposed that
if non-profit-organisations are unable to spend more than 75%
of their income on charitable and welfare activities, the amount
not spent shall be taxed at the rate of 10% and their status of non-profitorganisation shall remain intact. It is also proposed to
prescribe a limit of 15% on administrative and management expenses.
SALES TAX AND FEDERAL EXCISE DUTY
RELIEF MEASURES
84. Now I will present relief measures that are proposed to be
introduced in the Sales Tax and Federal Excise law during
the current Budget:
85. Withdrawal of extra tax on lubricating oils supplied by
OMCs- Withdrawal of extra tax @ 2% on lubricating oils supplied
by Oil Marketing Companies is proposed to prevent hardship
to businesses purchasing lubricating oils.
86. Reduction in sales tax on local supply of Hybrid Electric
Vehicles- In order to promote use of energy efficient motor
vehicles the reduced rates of sales tax available at import
stage are proposed to be made applicable on local supply of
these vehicles as well.
87. Automatic Stay of Recovery of till Decision of Appeal-
To prevent hardship to taxpayers it is proposed to provide
for automatic stay of the amount of sales tax involved in an order
that is the subject matter of an appeal till the decision
of Commissioner (Appeals) subject to payment of 25% of the principal
amount. This relief will be also available for recovery of
Federal Excise duty.
88. Exemption from sales tax on premixes for growth stunting-
To provide exemption from sales tax to specific premixes
for checking growing incidence of growth stunting. General
exemption already available under the Sixth Schedule is proposed
to be extended and its scope enhanced.
89. Withdrawal of sales tax withholding on supplies from registered
to other registered persons- It is proposed to withdraw
sales tax withholding on supplies from registered persons
to other registered persons in order to provide ease of
doing business. However, withholding of sales tax will continue in
the case of supplies to government departments.
90. Reduction in Sales Tax on Poultry Machinery- Sales Tax
on seven different types of machinery for use in poultry control
sheds is proposed to be reduced from 17% to 7%. This will
encourage new investment and promote poultry production.
91. Reduction in Sales Tax on Certain Services- Certain services
have been subjected to sales tax by the provinces at reduced
rates without any input adjustment. To bring uniformity and
provide relief to the service providers in Islamabad
Capital Territory similar reduction in sales tax rates is proposed.
92. Reduction in the Rate of Sales Tax on Multimedia Projector-
For the promotion of the use of multimedia projectors
in educational institutions the rate of sales tax is being reduced
from 17% to 10%. The rate of the custom duty on multimedia
projectors is already at the rate of 3%.
REVENUE MEASURES
93. Increase in the Rate of FED on cement- Cement sector
is registering substantial growth and therefore must
contribute in governmental revenues. Increase in FED on cement from
Rs.1/ kg to Rs.1.25/ kg is therefore proposed. It is expected
that there will be no impact on cement prices and the cement industry
will absorb the increase in FED.
94. Sales Tax on Retail Sales of Zero-Rated Sectors- The inputs of
the five major export oriented sectors were zero-rated in the
last budget. The retail sales by these sectors were subjected to
sales tax at 5%. Now, after consultation with the retailers in
these sectors the rate of sales tax is proposed to be enhanced to 6%.
95. Levy of sales tax on commercial import of fabrics- Sales
tax on commercial import of fabrics, presently at zero percent,
is proposed to be collected @ 10% to provide competitive edge to
the local producers of fabrics.
96. Enhancement of Federal Excise duty on cigarettes- in order
to enhance duty from this non-essential sector, to
discourage cigarette smoking and to arrest the declining revenue
trends from this sector, the rate of duty is enhanced on the
existing tiers of the cigarettes. Moreover, a new tier is being
introduced this year to document and curb the menace of illicit
trade of sub- standard low priced cigarettes.
97. Increase and rationalization of sales tax on steel Sector – in
order to rationalize the rate of sales tax on steel sector,
the existing rate of Rs 9/unit of electricity is being enhanced to
Rs 10.5 in consultation with the industry and corresponding
increase shall be made in ship breaking and other allied industry.
To promote the ease of doing business the issues of the steel
industry shall be resolved in consultation with the industry.