Eliminating all tax exemptions, concessions planned

KARACHI: The government considering to withdraw all types of tax exemptions and concessions during next few years.

 

 

Sources in Federal Board of Revenue (FBR) said that the government is making assessment of exemption cost, including government owned enterprises.

It is also planned that any exemptions or concessions would be granted with sunset clause. Further, it is considered that even permanent exemptions would also end in next five years.

No new exemption without costing by initiator and mandatory approvals, the sources said.

The sources said that exemptions and lower rate of taxation would be removed from income tax, sales tax and federal excise duty to improve horizontal and vertical equity in tax system.

The sources said that the government aimed at drastic reduction in tax expenditures by removing exemptions and excessive tax credits from incomes tax, sales tax and federal excise duty law, moving to a single sales tax (VAT) regime by doing away with special procedures and reduced rate taxation.

They said that the government had not proposed removal of exemptions in the Finance Supplementary (Second Amendment) Bill, 2019.

The government has planned medium term tax reforms, which would include reduction of number of withholding taxes (which are negatively effecting the use of banking sector or have an insignificant contribution towards revenue).

It will also include freezing the corporate tax rates at 30 percent or 29 percent and increasing the expanse of federal excise duties.

This will also need strengthening of FBR field formations through investment in IT / physical infrastructure and training (from current 0.68 percent of revenue collection to at least 1.25 percent in three years time).

The present arrangement of four provincial and one federal authority looking at the goods and services tax has increased the cost of doing business in an exponential manner.

In three years’ time, the government is aimed at moving to a single tax collection agency with single return and single auditing authority to cut down on compliance costs.

A revision of business processes, administrative structures and efficient dispute resolution mechanism will also be made.

These efforts will be coupled with tax payer education and facilitation by developing android apps for filing of returns and payment of taxes.

Cleansing of utilities database and data of immovable property ownership will be done to help FBR in identifying under reporting and non-reporting of incomes and sales through use of data mining.

All these measures are likely to help FBR and provinces to achieve the additional targeted revenue of 1.1 percent of GDP in FY 2020, 0.9 percent of GDP in FY 2021 and 0.3 percent of GDP in FY 2022.

However, the sources said that some of the recommendations had already proposed through Finance Bill 2019 and remaining would be made part of the finance bill for budget 2019/2020.

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