Pros and cons of tax measures

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A cursory glance at the federal budget for the year 2021-22 would show that Finance Minister Shaukat Tarin has fulfilled his commitment of not adding to the tax burden of the salaried class as no new tax on them has been imposed and tax slabs have also not been changed.

The budgetary documents reveal the Federal Board of Revenue (FBR) would take additional revenue measures of Rs383 billion in all major taxes including income tax, sales tax/federal excise duty and customs duty and provide relief of Rs119 billion during next year.

The additional revenue measures would definitely mean more inflation and more tax burden on different sectors and classes which will ultimately be borne by the common man including the salaried class.

The Government has definitely offered relief and incentives to various sectors of the economy and citizens but in the ultimate analyses these would not translate into actual benefits for the ordinary citizen because of other adjustments in the rates of taxes and duties.

There was great resentment against imposition of a number of withholding taxes (WHT) as they amounted to taxing even those who otherwise do not fall into tax net because of their limited resources and in this backdrop the decision to withdraw some of them is a welcome initiative.

Twelve withholding taxes are being abolished including those on banking transactions, air travel, stock exchange, CNG, petroleum products, international debit credit card transactions and extraction of minerals for providing relief of Rs15 billion.

Similarly, withholding tax on mobile phone services is proposed to be reduced from 12.5 to 10% but the intended benefit has been taken away by imposition of federal excise duty on mobile phone calls and SMS at Rs1 per call (call exceeding three minutes) and Re 0.10 per SMS to extract Rs70 billion from pockets of cellular subscribers in the next fiscal year.

This runs contrary to the popular belief that the telecom sector and services were heavily taxed impeding their growth in the country.

Ironically, the Government also originally proposed a levy of Rs 5 per GB on internet data usage but sanity prevailed and the federal cabinet did not approve it because of its obvious repercussions.

The threshold for withholding tax on the monthly electricity bill for domestic users who are not on the Active Taxpayers List (ATL) will be reduced from Rs 75,000 to 25,000 which means that a consumer whose electricity bill is Rs 25,000 or more and who is not on the ATL will have to pay withholding tax but this would be justified as this much consumption is indicative of the income and resources of the consumers.

Everyone would welcome withdrawal of withholding tax on cash withdrawals from banks and non-cash banking transactions as these were not only unfair but also served as disincentive for savings.

The decision to abolish withholding tax on domestic air travel could translate into cheaper travel domestically, facilitating increased mobility and tourism.

Prices of fruit juices, like other food items, increased significantly in recent months, therefore, the decision to withdraw FED on juices might help downward revision of their prices.

Exemption of value-added tax (VAT) and reduction of sales tax from 17% to 12.5% for locally manufactured cars having an engine capacity of 850cc or less plus imposition of a tax on the ‘on money’ on sale of cars might also result in lowering of prices of such cars besides encouraging direct and fast delivery of vehicles to actual buyers.

All this shows the new budget envisages a number of positive proposals for the benefit of the people but there was also a need to review some of the unrealistic measures like imposition of tax on calls exceeding three minutes and SMS.

Again, representative bodies of the federal employees have rejected the mere 10% increase in salaries and pensions as compared to unprecedented price-hike.

One of the opposition leaders, Ahsan Iqbal, has described it as a joke with government servants and pensioners and therefore, there is justification for the demand to grant at least 25% increase to them.

However, the opposition ought to listen to the appeal of Information Minister Fawad Chaudhry to give their suggestions for improvement of the budgetary proposals rather than making calls for protests.

We hope the opposition will play its part on the floor of parliament to help achieve this objective.

 

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