During the technical briefing on the Finance Bill 2019, FBR Member Inland Revenue Policy Dr Hamid Ateeq Sarwar informed media that the FED measures totalled at Rs 70 billion, sales tax measures at Rs 200 billion, income tax measures at Rs 200 billion and net customs duty measures totalled at Rs 30 billion. Out of taxation measures of around Rs 512-516 billion, the exemptions of income tax and sales tax have been withdrawn to the tune of Rs 300 billion.
The FBR Member said, "We have to generate additional revenue of Rs 1400 billion for achieving revenue target of Rs 5,555 billion for 2019-20." Despite repeated questions, the FBR Member refused to share revenue impact through the administrative measures taken for 2019-20.
The FBR officials said that the FBR will generate around Rs 50 billion from increase in tax rates for salaried/non-salaried persons. However, there is no change in tax rate of Super Tax. The restoration of normal sales tax regime for steel sector would generate Rs 25-30 billion, he said. The taxation of real estate sector would generate an amount between Rs 20 billion and Rs 40 billion, the FBR chairman said.
To a query, FBR Chairman Shabbar Zaidi said that the proposal of Health Tax on beverages and cigarettes has not been accepted by the cabinet as the additional FED has been increased on cigarettes and beverages. The increase in the FED on cigarettes would be applicable form June 12, 2019. The FED has been enhanced and it redefined the thresholds by abolishing the third tier on cigarettes. The FBR chairman said that the FED on beverages has been increased form 11.5 percent to 13 percent.
Shabbar Zaidi said that presently foreign remittance equivalent to Rs 10 million as a source of investment can not be probed. Now the said threshold is being reduced from Rs 10 million to Rs 5 million for explaining the source of investment through foreign remittance. The limit will be totally abolished in different phases, he added.
According to other major measures, the FBR rates of immovable properties would be taken closer to or about 85% of actual market value. In addition, 3% tax for not explaining the source of investment is being withdrawn.
Cement is chargeable to federal excise duty @ 1.5 per kg. It is now proposed to increase federal excise duty on cement to Rs 2 per kg. The non-aerated packaged sugary drinks, such as juices, syrups and squashes may be subjected to FED at 5% of retail price. It is also proposed to increase FED on LNG from Rs 17.18 per 100 cubic metre to Rs 10 per MMBTU bringing it to same level as for local gas.
Through Finance Supplem-entary (Second Amendment) Act, 2019, FED on locally manufactured / assembled cars of 1700 cc and above was introduced @ 10%. Now, in order to rationalise this levy, it is proposed to enlarge the scope of FED and following slabs are being proposed: cars from 0 to 1000cc, 2.5%; cars from 1001cc to 2000cc, 5%, and cars from 2001cc and above, 7.5 percent.
It is proposed to increase the rate of FED to 17% on edible oils / ghee / cooking oil.
Presently, the tax rates for salaried persons are applicable to persons having 50% or more of their total income from salary. Now these tax rates for salaried persons are to be applicable to persons having 75% or more of their total income from salary. Consequently for persons having salary income less than 75% of total income, the rates applicable to non-salaried individuals would apply. In the case of salaried individuals deriving income exceeding Rs 600,000, eleven taxable slabs with progressive tax rates ranging from 5% to 35% are being introduced.
For non-salaried persons deriving income exceeding Rs 400,000, eight taxable slabs of income with tax rates ranging from 5% to 35% are being introduced through Finance Bill 2019.
Under the Finance Bill 2019, the income tax by its inherent nature is tax charged and levied on income. However presently persons involved in certain transactions are not required to pay tax on their actual profit. Instead, the tax collected or deducted on these transactions is treated as final tax liability. This regime is available persons to such as commercial importers, commercial suppliers of goods, contractors, persons deriving brokerage or commission income and persons earning income from CNG stations. The tax collected or deducted from the aforesaid persons shall now be treated as minimum tax liability except for exporters, persons winning prizes and sellers of petroleum products. This measure is designed as a first step for gradual phasing out of the final tax regime and transition to income based taxation for all persons.
The tax rate for companies has gradually been decreased from 35% in tax year 2013, to 30% in tax year 2018.Through the Finance Act, 2018, the tax rate for companies was further intended to be reduced from 30% in tax year 2018 to 25% in tax year 2023. At present, for tax year 2019 the tax rate is 29%. As the tax rates have already been reduced from 35% to 29% in the last six years, and the fact that Pakistan has the lowest corporate tax rate in the region, the tax rate for companies has been fixed at 29% in order to recover and maintain the tax base to ensure revenue.
The FBR official said that the FBR has increased holding period for the purpose of taxation of capital gains on immovable properties.
At present capital gain on immovable properties is subject to separate taxation on the basis of holding period of property. The tax rates are 10%, 7.5% and 5% for holding periods less than one year, between one to two years and between two to three years respectively. There is no tax if the property is held for more than three years. In order to check tax evasion and to ensure equal taxation of all incomes, income from capital gains is being brought under the normal tax regime and taxed at normal rates. However, to account for the time value of money, the gain on open plots would be reduced on the basis of net present value so that where the holding period is up to one year the full gain will be taxed. Where the holding period is between one to ten years, 75% of the gain shall be taxed and there will be no tax in case the holding period is more than ten years.
Similarly, gain on sale of constructed property is to be fully taxed where the holding period is upto one year and 75% of the gain will be taxed where the holding period is between one to five years. Where the holding period is above five years no gains shall be taxed.
In Pakistan, the real estate sector is one of the biggest sources of money laundering and is used as a parking lot for untaxed as well as ill-gotten money. In view of this a wide range of steps have been taken to restructure the taxation of this sector. The various steps being taken are as under:-
At present, the Board has issued valuation tables of immovable properties in 21 major cities wherein such properties are valued at a value higher than the DC rates. The purchasers are also required to pay 3% tax on the difference between the DC value and FBR value of property to explain the source of investment to the extent of differential between FBR value and DC value. The rates notified by the Board are still considerably lower than actual market value. It is therefore intended that FBR rates of immovable properties would be taken closer to or about 85% of actual market value. In addition, 3% tax for not explaining the source of investment is being withdrawn.
As the increase in FBR values of immovable property is going to increase the incidence of tax on genuine buyers and sellers, the rate of withholding tax on purchase of immovable property is being reduced from 2% to 1%.
At present, withholding tax on purchase of property is attracted only if the value of property is more than four million rupees. The threshold of four million rupees is being abolished and withholding tax on purchase is to be collected irrespective of the value of property.
At present, there is no withholding tax on sale of property if the property is held for a period of more than three years. Since capital gain is to be taxed under normal tax regime even beyond the period of three years, withholding tax on sale of property would be collected where the holding period is upto five years.