The relief-oriented Finance Bill 2011-12 issued here on Friday envisages a number of tax measures for giving some cushion to the business and trade sectors. The reduction in sales tax rate from 17 percent to 16 percent would cause revenue loss of Rs 35 billion, and abolition of SED would be a source of revenue loss worth Rs 12 billion to the national kitty.
Finance Minister Abdul Hafiz Sheikh laid the Finance Bill 2011-2012 before the National Assembly here on Friday. The government has abolished regulatory duty (RD) on 397 goods except betel nut, cigarettes, luxury vehicles (1800 cc and above) and luxury tiles and bathroom fittings. Duty has also been reduced up to 5 percent on the pharmaceutical raw materials to provide relief to the common man.
FED has been abolished on services provided by property developers and promoters while there is reduction in FED from 12 percent to 6 percent on aerated beverages along with abolition of FED on white cement. The exemption regime is being rationalised with the objective to reduce its scope only to selected sectors.
The sales tax on sugar at import and local supply stage has been withdrawn and eight percent federal excise duty is being levied on aforesaid stages. The revision in the upward limit of duty slabs to enhance the burden of federal excise duty on locally produced cigarettes. The value-addition tax levied on commercial importers is being enhanced from 2 percent to 3 percent, which is levied and collected at import stage.
On the direct taxes side, the rate of tax deductible on cash withdrawals from banks is proposed to be reduced to 0.2 percent from current 0.3 percent, for bringing improvement in the liquidity position of eligible taxpayers.
For the welfare of individuals with low income, the basic exemption limit is proposed to be enhanced from Rs 300,000 to Rs 350,000. However, individual taxpayers whose normal income is between Rs 300,000 and Rs 350,000 shall be required to file return of income along with statement for the purposes of documentation.
The government has also announced a major incentive for encouraging companies' enlistment on stock exchanges. The present tax credit equal to 5 percent is proposed to be enhanced to 15 percent. The government has also announced a major tax relief for the new corporate industrial undertakings. To encourage enhanced equity financing, and to provide relief to new corporate industrial undertakings established on or after 1st July 2011, with 100 percent equity financing, a tax credit equal to 100 percent of tax payable is proposed. The existing companies may also take benefit under this arrangement if investment in BMR is financed through their 100 percent equity, on or after July 1, 2011.
Finance Bill (2011-2012) further said that in order to harmonise the existing tax credits available to individuals for investment in shares and for premium paid to insurance company, the maximum cumulative limit for both investments is fixed @ 15 percent of the taxable income, with maximum upper limit of investment up to Rs 500,000.
Under the new relief measures, tax relief is proposed to be provided to withdrawals exceeding Rs 500,000 from a Voluntary Pension Fund. In order to discourage the practice of arbitrage by banks for receiving 'dividends' from Asset Management Companies, the rate of tax on such return is proposed to be enhanced from 10 percent to 20 percent.
For encouraging investments made by non-residents in Government Securities, the withholding tax on profit on debt deductible @ 10 percent is proposed to be a final tax. This measure will relieve the non-residents from the statutory requirement of filing of return of income, and will boost national economy.
The withholding tax on profit on debt deductible @ 10 percent arising from investment in government securities by individual is also proposed to be a final tax. This measure will relieve such taxpayers from the statutory requirement of filing of return of income, and will also encourage domestic investments in government securities.
After imposition of capital gain tax on Modarba certificates and instruments of redeemable capital traded at stock exchange through Finance Act 2010, the 0.01percent CVT on such instruments is proposed to be withdrawn in order to encourage their trade.