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Withdrawing tax concessions

Withdrawing tax concessions

Under the IMF’s bailout package of $6.64 billion for Pakistan’s struggling economy, the time has come when the government will have to deliver on key and politically tough conditions on taxation side. The government is in the process of finalizing list of exemptions which will be abolished in phases starting from next budget 2014-15 by incorporating it as part of next Finance Bill 2014.

There is also need to broaden the tax base by abolishing number of existing exemptions but there will be dire need to bring down rates of Income Tax as well as Sales Tax into single digit with the objective to reduce the tax burden on existing taxpayers without compromising tax revenues.

On one side, the tax base should be expanded while on other hand the incidence of burden should be decreased to give incentives for coming into tax net.

In order to finalize the list of exemptions which are going to be abolished in the next budget, Finance Minister, Senator Ishaq Dar had chaired a meeting of the high powered committee constituted by the government to review concessionary regime in totality. This committee will also identify those set of exemptions which will be abolished in the first year starting from July 1, 2014.

The government intends to do away tax exemptions of all taxes including Income Tax, Sales Tax, Federal Excise Duty and Customs Duty. Some Statutory Regulatory Orders (SROs) will be withdrawn especially on Customs side with a view to rationalize tariff in a bid to provide level playing field.

The committee had threadbare discussions regarding the said existing concessionary regime with the view to identify concessions/exemptions which could be rationalized, simplified, minimized and deleted in the budget 2014-15.

While appreciating the spade work done by the technical sub-committee in consultation with the representatives of the various Chambers of Commerce & Industry, the Finance Minister directed the administrative Secretaries of different Ministries/Divisions to re-evaluate the recommendations so that new investments in textile, energy and ship-making sectors are encouraged and level playing field is created for all the stakeholders in the economy beside harvesting the fruits of GSP plus status accorded to Pakistan.

The Minister also directed that while re-evaluating the recommendations of the technical sub-committee, concessions affecting common man should not be withdrawn and cascading principles of tariff rationalization be observed in letter and spirit.

But it is yet to see that how the common man is protected in this whole process. There is need to identify certain sectors which are exempted in accordance with international standards such as basic food items and medicines and education (not expensive schools and universities), all other sectors should be brought into the tax net.