BUDGET 2009-10, TARGETS THE POOR & VULNERABLE

BUDGET 2009-10, TARGETS THE POOR & VULNERABLE <!--[if gte mso 10]> BUDGET 2009-10, TARGETS THE POOR & VULNERABLE By M. Iqbal Patel, F. C.A., Karachi Advisor to the Prime Minister on Finance, Shaukat Tarin while summing up the debate at a three-day moot arranged by the Federal Board of Revenue (FBR) on Tax Policy Options for Pakistan. Said "it should be a broad-based tax system, administrated properly. It should be devised in a manner in which each and every Pakistani should share the burden instead of burdening some people who will ultimately find ways not paying those taxes." Similar views were expressed by him from time to time during last few months. Looking the budget 2009-10 document prepared under his leadership, with the said views expressed by him, all his claims that burden of taxes should be equitably shared by all, proved false and political slogans only. The agriculture sector continues to enjoy amnesty from income tax which has potential for high revenue generation. It is the only sector that posted better than expected growth of 4.4% during the fiscal year 2008-09. Contrarily its target for 2009-10 is fixed at 3.8% that is below than it achieved in last year. Whereas it is interesting to note that the salaried class is burdened with additional tax @ 5% of tax payable by individuals, AOPs whose income exceeds Rs.1 miln for tax year 2009 for the benefit of IDPs. Moreover, a new tax at the rate of 30% has been imposed on bonus income of corporate executives for the rehabilitation of IDPs. At least this burden-should have shared equitably for noble cause by the privilege class of lawmakers and rulers of the country. The legislatures, judiciary, armed forces, president, governors all of them have been given relief from this levy because their salaries, perquisites and benefits are exempted from tax under the Second Schedule of the Income Tax Ordinance 2001 (Ordinance). Thus the budget document reflects continuance of the governments' policy to tax those who are in tax-net. It did not seem to be in a mood to put in efforts to broaden the tax-net bringing the privilege class into tax-net. The claim of the advisor to bring into tax net the capital gain arising on the transaction also proved false. Moreover, taxing of real estate was on the card but tax on capital gain on real estate transaction continue to enjoy exemption from tax, however, the rate of capital value tax on transfer of, immovable property has been enhanced from 2% to 4%. Thereby the genuine property owners would bear this burden while the speculative and non-productive investors may find a way to escape from this levy to transact the property through the power of attorney. Thus the government will fail to curb speculative tendency and discourage non-productive investment. Further it would have adverse affect on purchase of immovable property for real estate business under the Real Estate Investment Trusts Scheme. The Securities Exchange Commission of Pakistan had sought exemption from CVT on such properties. The budget proposes removal of the 5% federal excise duty " (FED) on sales of locally produced vehicles to give relief to the richer class of the society; while it withdrew the exemption from FED on the import of ware potatoes and onion, which is necessity of the people especially the poor who will have to bear the burden of this levy. This measure has been taken, as claimed by the Minister of State, to provide protection to the growers. In fact main beneficiaries would be the ruling class and strong lobby of legislatures. The government has undertaken Tax Administration Reform Program (TARP) sponsored by World Bank and DFID. The main focus of TARP has been on promoting voluntary tax compliance through an enhanced level of tax-payers facilitation. Moreover, the FBR has hired heavy paid foreign consultants for smooth implementation of reforms under the TARP. But the tax proposals in the budget reflect a policy shift by the government. It has taken reverse gear tax policy to raise high tax revenue and has reintroduced tax measures which were provided in the Income Tax Ordinance 1979,(Repealed). The taxpayers legitimately ask the FBR that if it has not satisfied with the performance of the foreign consultants, then why their money is wasted in payment of their remuneration and other benefits. The section 147 is proposed to be amended to change the basis of payment of advance tax by the companies and association of persons on the basis of actual turnover of the quarter instead of on the basis of income. The repealed Ordinance had provided for appointment of a firm of Chartered Accountants by the Board to conduct audit of any person. The Finance Bull 2009, under reverse gear tax policy, proposes to insert subsection (1B) to section 210 whereby a Commissioner is empowered to delegate the powers to a firm of Chartered Accountants for tax audit under section 177 and to obtain information, records or computer etc. under section 176. It proposes to reintroduce the -section 113 of minimum tax on the companies, where, no tax is payable or the tax payable is less than 0.5% of the turnover from all sources. Concept of presumptive tax regime has been abolished in the cases of under section 153(6). The tax deducted from payment on account of services rendered by the non-corporate taxpayers was treated full and final discharge of tax liability. The tax so deducted has now been made minimum tax meaning thereby that such tax would be either will be adjusted against final tax liability to be determined on finalization of assessment or would be refunded in case final tax liability is less than the amount of tax so deducted at source. Besides it, such taxpayers will now require to file return of income instead of filing a statement. A new tax has been imposed on the exporters whereby the Collector of Customs has also been authorized under section 154(3C) to collect tax 01% at the time of clearing of goods exported. Thus an exporter will require to pay 2% tax on export of goods, 1% on clearing of goods and 1% on realization of export proceeds of the same goods. This measure in addition to withdrawal of the presumptive tax facility of the exporters will discourage the export, which consequently will create resource gap and enhance the deficit and will have damaging effect to ailing economy of the country. Similarly rate of withholding tax on import of commercial nature has been enhanced from 2% to 4%. In order to follow the policy of broadening the tax net, it has been made mandatory to obtain of national tax number (NTN) for the, purchase of property, obtaining commercial and industrial electricity and gas connections and opening of a bank account. The section 114 is proposed to be amended whereby all the NTN holders, any person owning immovable property with a land area of 50 sq. yds., flat with a covered area of 2000 sq, feet or a motor vehicle having engine capacity of 1000cc or more, importers, exporters and service providers, shall file normal income tax return. These measures will promote documentation and broaden the tax net. The salaried taxpayers whose income exceeds. Rs 500,000 or more shall now file a return of income along with proof of deduction of tax and wealth statement. Though the scope of filing of return of income has been extended in order to hunt for new taxpayers who has tendency to keep themselves out of tax net but it would enhance the discretionary powers of the tax collectors. Similarly the powers given under section 121 to the Commissioner to make a best judgment assessment of a person who does not file. the prescribed statement of his receipt under section 115(5), power given to the Commissioner under section 138 for recovery of tax out of property through arrest of tax payer, extension the scope of prosecution under section 191 in the case of those persons who have failed to file a return of income etc. all these measures have negative aspect too as these measures would enhance inherent discretionary powers of the tax collectors. Moreover, these measures will virtually defeat the universal self assessment scheme envisaged under section 120 of the Ordinance. Therefore, it is suggested for measures to be provided in the Ordinance to safeguard against counter productive actions of the tax collectors and also to ensure that the -assessments will not be completed under duress. With a view to give incentive to the manufacturer who is registered under the Sales Tax Act 1990, the Bill proposes a tax credit @ 2.5% of the tax payable wilt be allowed under section 65B to him provided 90% of its sales are made to the registered persons during the tax year. The budgetary measures to generate revenue are not in confirmative with the speeches the Advisor made during the pre-budget period. He had stated that the government was determined to move in the direction of taking most difficult decisions required to reform the tax policy , but the budget failed to get a breakthrough in revenue mobilization, resulting neither desired tax-to-GDP ratio may not be achieved nor targeted revenue will be generated. The Advisor's reliance on the IMF to meet the requirement of the fund would be at the cost of mortgaging the future fate of the country in foreign hands. He has again approached the IMF to raise further fund of US$ 4 bin within 8 months after SBA Agreement. He is begging in addition to 7.6 bin obtained under SBA. The government failed to meet the conditionality of IMF made under SBA just before four months ago. The government should concentrate to the industrial policy and to rebuild it which will generate revenue and employment in the country.