20000109

Enhanced limit

for personal income recommended

Recorder Report

Islamabad: While the tax reform sub-group has proposed enhancing the taxable limit of personal income, it has also devised a number of proposals for broad-basing the tax net, which would eventually bring down the tax rates.

The sub-group headed by Dr Hafeez Pasha, former deputy chairman of Planning Commission, has recommended that the present ceiling of non-salaried taxpayers should be raised from Rs 40,000 to Rs 55,000; of salaried taxpayers from Rs 50,000 to Rs 65,000 and working women from Rs 60,000 to Rs 75,000. Besides the personal income tax rates are also to be brought down.

The sub-group felt that this relief was necessary in view of the growing poverty and reduced purchasing power because of inflation.

The relief package for taxpayers suggested in the report urges GST exemption on processed foods.

The sub-group has strongly favoured continuation of GST exemption on agricultural inputs and machinery despite pressure from international agencies.

The sub-group has also recommended reduction in the GTS rate from 15 percent to 12.5 percent but it felt this would be possible if the broad-basing proposals are implemented.

It has also proposed enhancing the wealth tax exemption limit to Rs 2.5 million for wealth taxpayers of both agricultural and non-agricultural wealth taxpayers.

Besides, wealth tax paid be deducted from taxable income for the purpose of income tax.

The sub-group felt that relief given in personal income tax and wealth tax would help improve the purchasing power and raise demand for a number of industries.

For broad-basing of taxes and rationalisation of tax rates, the sub-group has suggested extension of sales tax and excise acts and income tax law to FATA/PATAs/N-Areas with two-year continuation of exemption for existing units.

The sub-group has suggested withdrawal of income tax exemptions based on the following principles:

"No exemption be withdrawn retrospectively; all time-bound exemptions should lapse by the cut-off dates; business income of all the entities be subjected to tax; and perquisites of employees be moneatised and taxed as salary income."

An important suggestion is that immunity on funds used to acquire assets sold by the Privatisation Commission should be withdrawn. As a matter of policy to unearth the black money, the government had allowed this immunity but after allowing one time immunity announced recently, this provision is in line with government policy to discourage tax evaded money.

The other suggestions for broad-basing the tax net include:

--Withdrawal of GST exemption on aircraft, domestic manufacture of ghee from imported edible oil (palm oil and soyabean oil), CBU buses under NRI, imported vehicles paying duty in foreign exchange, and construction machinery (under the former PMs Housing Scheme).

--Withdrawal of exemption from custom duties on urban transport sector imports and construction machinery.

--Reduction of Customs SROs to a maximum of 35, from the present number of over 70.

--Agricultural and non-agricultural assets be clubbed together for wealth tax purposes.

--Exemption from the agricultural wealth tax to vehicles (Pajeros, etc.) and on self-occupied property (in urban areas) above four kanals or 2000 square yards may be withdrawn.

For rationalisation of tax rates, the sub-group suggested among things:

--Personal Income Tax: In the Finance Act of 1999 perquisites were merged into the basic salary, but tax rates were enhanced simultaneously to a maximum of 35 per cent from 20 per cent. This runs counter to the strategy of broadening the tax base and rationalising the tax rate. As such, tax rates are proposed to be brought down.

--Contributions to pension schemes/funds and approved provident funds to be treated as tax deductible for income tax purposes upto a maximum of 10 per cent of salary.

GST: Subject to the broad-basing of the GST, the standard GST rate may be brought down to 12.50 per cent from 15 per cent. 2.50 points of GST may be earmarked by the federal government in lieu of octroi and zila tax grants.

Custom Duties: Reversion to the pre-1999 Finance Act import tariff structure on imported cars and 4X4 vehicles.