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Home »Budgets » 2004-05 » Taxation measures to have Rs 7.5 billion negative impact
Finance Minister Shaukat Aziz said here on Sunday that taxation measures introduced in the Budget 2004-05 would have a net negative impact of Rs 7.5 billion in revenue collection because of a quantum shift in tax systems to focus on reforms, in addition to revenue generation.

Addressing the post-budget press conference he said that the loss would be covered through expanding the tax base, and the negative impact would be nullified due to increase in GDP growth.

He explained further the details of the ease offered to various classes, like farmers not to be arrested in case of default to revenue departments.

"The target of Rs 580 billion set for next fiscal year would largely depend on the growth, inflation and reforms in the tax administration," he added

"We are confident that after removing the three slabs of GST and bringing in one, ie 15 percent, and doing away with the complications of multiple GST rates would bring more people in the tax net thus enhancing the collection under this head," he said, adding that "this would benefit the small traders and the SME sector most which were not having GST registration."

Further, he said, the limit of turnover for GST registration has also been enhanced from Rs 0.5 million to Rs 5 million, with an agreement of 0.75 percent fixed income tax, to promote small businesses and SME sector.

About the impact of 0.1 percent capital value tax (CVT) on purchase of shares, the minister said that 0.1 percent CVT has been imposed in view of extensive tax-free income being generated in the capital market. However, this step should not impact the capital market which is performing very well. "Stock markets are run on fundamentals and with higher growth and more economic activity the stock markets should perform even better."

The minister said that the measures taken in the federal budget 2004-05 would further improve investment climate, promote investment, accelerate growth, give boost to agriculture sector, create employment opportunities, further reduce poverty, improve social indicators and would go a long way in strengthening the country''s physical infrastructure.

"The budget has introduced considerable reduction in the cost of doing business through reducing industrial and commercial power tariffs, reducing the import duties on raw materials and on import of capital goods, which would benefit large-scale manufacturing (LSM), the SME sector and the small traders."

The minister said that much focus has been given to the poor, particularly in the rural areas of the country. Senior citizens'' problems have been given serious consideration and addressed through increasing pension, and abolishing 10 percent withholding tax on Behbud Certificates.

"The National Savings department of the government, having around 300 offices in the country, is being planned to be given new look of corporation with a new name of ''Pakistan Savings'', owned 100 percent by government but with the new corporate look," Shaukat Aziz said, adding that "this would help increase the product profile with introducing of new products like creating of mutual funds to give better returns on savings of the people."

The minister said that to enhance the productivity in agriculture sector some 300 bulldozers are being imported for levelling of fields for efficient use of water resources and enhance per acre yield. "This would also help increase the income of farmers."

He said that the focus is also to raise the non-agriculture incomes of people living in rural areas, and for this purpose the lending would be enhanced in rural areas through micro-finance on the model of Thailand.

"The government plans to promote cottage industry, both in urban and rural areas, which would help promote self-employment, particularly in rural areas," he said.

At the same time, the minister said, the government wants to initiate urban renewal programme to cater to the growing needs of big cities arising out of rural-urban migration. Initially, the programme would be started in Karachi and Lahore; then in the second phase in other cities.

Regarding the charging of TV licence fee through power utility bills, he said that whoever does not have TV set in his house can go to Wapda office and get Rs 25 waived from the bill.

About duty on computer and computer accessories, he said that it was necessary, since the zero-rated facility was being misused. However, this measure should not have a major impact on prices.

About defence budget allocation for next fiscal year, the minister said that the allocation was not much since it was only 7 percent higher than the revised estimates of last fiscal tear. "The defence expenditure is only 3.9 percent of GDP, compared to actual spending of 4.1 percent of GDP in the outgoing fiscal year."

The minister said that if need arose the government would not hesitate to allocate more resources for defence purposes, "since we believe in two things ie strong defence, and economic sovereignty of the country".

APP ADDS: Finance Minister Shaukat Aziz in his post budget briefing termed the budget 2004-05 as growth, relief, investment and opportunities oriented.

Addressing a crowded press conference, the finance minister flanked by Parliamentary Secretary on Finance Umber Ayub Khan, Finance Secretary Nawaid Ahsan, Deputy Chairman of Planning Commission Dr Muhammad Akram Sheikh, CBR Chairman Abdullah Yousuf, Economic Advisor Dr Ashfaq Hassan Khan, PIO Akram Shahidi and other officials, said that the budget 2004-05 is broad-based and its positive impact will reach every nook and corner of the country.

He said that basic philosophy of the budget is the development of the country, "and we are shifting from incrementalism to quantum leaps".

"Our macro-economic situation is strong and that is the reason we have taken bold steps by slashing tax and customs rates to further activate economic activates in the country," he remarked.

"We also rationalised General Sales Tax (GST) and fixed it at 15 percent while earlier four types of GST were implemented in the country including deduction at rate of 15 percent, 18 percent, 20 percent, 23 percent," he said. He added that through this decision the refund process will also become easy.

About the allocation for development, he said that under Public Sector Development Programme (PSDP), the government has made historic and record allocation of Rs 202 billion.

He said that the government wants to improve infrastructure and enhance spending on health, education and social sector development in order to avoid choking off sustainable growth rate.

About the relief, he said various relief measures were announced in the budget which include salary increase, pension, and others.

He said that ad hoc relief equivalent to 15 percent of pay provided to the employees of the federal government. He said that the increase will be on the running pay.

For the benefit of widows and pensioners, the investment limit in Special Savings Scheme is enhanced from Rs l0 million to Rs 20 million, he said.

In addition, the requirement of depositing the amount in one go is dispensed with and investment can be made as desired by investors, he said.

Investment in Bahbood certificates/accounts is subject to adjustable withholding tax at 10 percent on annual profit. As a measure of relief, this investment is now exempted from withholding tax, the minister said.

For borrowers of the HBFC house building loans, who could not repay loan in time, their outstanding loans are frozen at July 1, 2004, he said.

Shaukat Aziz said the outstanding frozen amount can be repaid in 36 equal monthly instalments through post-dated checks.

This will alleviate hardship of 38,000 borrowers which are mostly widows, retired persons and people from extremely low incomes.

He said with respect to the HBFC house building loans, the remaining outstanding cases where the repayment time is not expired, borrowers will be allowed to repay the amount in equal installments in remaining period of loan through post-dated checks.

For such loans, the rental charges are reduced from 18 percent to 10 percent w.e.f July 1, 2004. This concession will provide relief to another 175,000 borrowers of the HBFC, he added.

The threshold of income liable to tax has been increased from Rs80,000 to Rs100,000, he told journalists. Senior citizens with 65-years-of-age and above are allowed reduction in tax liability by 50 percent if their income does not exceed Rs200,000, he said. To give further relief to them, the income limit is raised to Rs300,000, he added.

The TV license fee of Rs300 per annum instead of making payment in one go can be collected in 12 equal monthly instalments of Rs25 each through domestic electricity bills from those whose monthly consumption of electricity exceeds 100 units.

To a volley of questions, he said there may be certain problems in the collection of TV license fee with electricity bill but with the passage of time it will settle down.

He said that if any household declares before the Wapda that he does not possess TV then the fee will not be charged.

He said that electricity tariff for domestic consumers is reduced by 10 paisa per unit; 25 paisa per unit for commercial consumers; and up to 58 paisa per unit for industrial consumers.

Equalisation of fixed rate for tube-wells in Punjab and Sindh with those applicable for Balochistan and NWFP, he said.

About the incentives announced for the agriculture sector development, he said that through adjustment in taxes prices of the DAP is reduced by Rsl00 per bag.

He added that import of new tractors below 35HP and above 100HP will be allowed with only 10 percent duty. There will be no GST or withholding tax on such imports, he remarked.

The imports of all agriculture implements not manufactured locally will be allowed without imposing any import duty, sales tax and withholding tax, he said.

New tractor plants can be set up with 40 percent deletion requirement in the first year and 100 percent within 5 years, he said.

Duty structure on imported pesticides is modified to encourage local formulation, he added.

Over 60 percent increase in allocation for water sector (from Rs 15.7 billion to Rs 25.17 billion), he said. To ensure cheap availability of credit to agriculture sector, the Zarai Taraqiati Bank Limited (ZTBL) will lower mark-up rate from 14 percent to 9 percent, whereas those who would pay on time, the applicable mark-up rate will be 8 percent; this rate will be applicable for all types of new loans and financing of tractors and tube-wells, he said.

Offering a settlement scheme for small borrowers of the ZTBL with repayment difficulties, he said for loans of up to Rs500,000 that are in arrears since December 31, 2000, settlement can take place on payment of 50 percent of the outstanding amount or full principal, whichever is higher.

In addition, for small borrowers of up to Rs200,000 from Balochistan living in areas which have been affected by persistent drought, and having arrears since December 31, 2000, settlement can be made on payment of 25 percent of the principal amount.

The power of the ZTBL to recover its dues as arrears of land revenue is withdrawn with immediate effect. This will save the poor farmers from humiliation of arrest and imprisonment, he said.

He said that the government is planning to import 300 bulldozers, which will be distributed in all the four provinces to level the fertile land for cultivation.

About the SME sector, he said it has the ability to spur pro-poor growth and absorb manpower. The "Hunarmand Pakistani" scheme, which was launched last year for a small group of industries such as cutlery, surgical instruments, doctors and dentists clinics, women entrepreneurs and CNG stations attracted a lot of attention, he said.

The SME Bank is reducing its cost of lending from 11 percent to 9 percent for those who are paying their obligations on time, he said. The SME Bank will be increasing its lending to Rs 3 billion in 2004-05 and will broaden the scope of industries under the "Hunarmand Scheme", he added.

Turnover tax scheme is being abolished and exemption threshold for application of sales tax has been raised from Rs 0.5 million to Rs 5 million after fold increase, both for manufacturers and retailers.

Shaukat Aziz said that National Saving Schemes which has 300 branches all over the country will be renamed as Pakistan Saving, which will be a corporation with autonomous board.

He added that the decision aims at improving the performance. He added that product profile of Pakistan Saving will also increase, besides, staff training.

He added that the government has also decided to establish National Technical Vocational Institute, which will be an authority headed by the private sector.

The prime objective to set up this institute is to impart skill training to youth in different fields. He added that the institute will identify, with the co-operation of private sector, at home and abroad, the demand so that skilled manpower could be provided.

For the rural development, he said that different measures were announced in the budget. He added micro credit card will be announced shortly for farmers.

He said that the government has also announced different rural area development programmes, which will help to develop infrastructure and also create income generation opportunities.

He said that the Khushali Bank has opened its branches in 38 districts and disbursed more than Rs 2 billion to 211,000 poor families. He added that by the year-end, the Khushali Bank offices will be opened in 60 districts.

He said that for the community infrastructure development, capacity building and private enterprises development, Rs 100 million were allocated.

About the urban renewal programme, he said that with the help of the World Bank and the Asian Development Bank, cities having more than five million population (Karachi, Lahore) the infrastructure will be improved there.

He added that for the next level, cities, having population of less than five million, will get benefit to develop their infrastructure with the help of donors.

Replying to a question about the 7 percent defence budget increase, he said the defence budget for 2004-05 envisages an allocation of Rs 194 billion as compared to Rs 180 billion of the previous year, which is around 7.4 percent more than the previous year.

However, he said the increase in terms of the GDP is actually less. He said in terms of the GDP, the budget allocation this year is 3.9 percent, while last year it was 4.1 percent of the GDP.

He said an impact of Rs 11-15 billion is expected due to raise in salaries.

Copyright Business Recorder, 2004

Copyright Associated Press of Pakistan, 2004

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