A meeting of the Senate Standing Committee on Finance, chaired by Senator Farooq H Naek, discussing the Finance Bill 2018 on Monday wondered how the government can afford to let those in the tax net go." Some committee members and former Secretary Finance Dr Waqar Masood, who was invited to give his expert opinion, maintained, "This is the worst step for tax culture because real income has been increased at the cost of exchequer." They added that half of taxpayers have been allowed to get away from the tax net.
The committee wanted the tax to be reduced by five percent - from existing 35 percent to 30 percent and not to 15 percent with bottom limit of Rs 800,000. Waqar Masood said, "You cannot afford to let those in the tax net go,"
Mohsin Aziz stated that this was a populous measure lacking any economic rationale.
Senator Mian Attique and others stated that on one hand, the government is increasing the sales tax and imposing additional customs duty, etc, while on the other it is providing unprecedented slash in income tax on individuals.
The Federal Board of Revenue (FBR) officials halfheartedly defended the proposal on the premise that reduction in tax may encourage people to come in the tax net. "There is no evidence or study to substantiate if tax rate is reduced people will come into the tax net," said Waqar Masood.
However, members Inland Revenue-Policy Dr Muhammad Iqbal said that a nominal of Rs 1000 and Rs 2000 for individuals' income of Rs 800,000 and Rs 1.2 million respectively was meant to protect the number of filers in the tax net otherwise most of them would be excluded from the tax net.
He said that measure will entail a revenue impact of Rs 90 billion and the financial impact of the scheme on salary class will begin from July 1, 2018 while finance impact on businesses will be from next fiscal year when they (business) will file their returns.
The committee also rejected the government's proposal to impose levy on mobile handsets after FBR was unable to satisfy the questions of the members about mechanism and collecting authority and why it was essential to introduce it through finance bill when there was a court decision on similar levy. All FBR was able to state was that the proposal may have come from the information technology (IT) ministry, upon this, the committee's view was that "IT ministry should impose the levy on mobile handsets through its own law."
The committee also opposed 20 years tax holiday proposed by the government for profit and gains derived by refinery set up between July 1, 2018 and June 30, 2023 with minimum 100,000 barrel per day production and recommended that tax holiday should be not more than 10 years.