Federal Budget FY22 envisages Rs506 billion additional revenue through taxation and enforcement

KARACHI: The Federal Budget FY22 envisages a collection of Rs506 billion in additional revenue through taxation and enforcement measures.

According to the proposed budget, Federal Board of Revenue (FBR) estimates to collect net additional collection of Rs264 billion through taxation measures and Rs242 billion through enforcement measures. FBR will generate Rs2.1 trillion through direct taxes and Rs3.6 trillion of indirect taxes.

Federal Budget proposed no changes for income tax slabs for salaried class and federal excise duty on cigarettes. However, the FBR has brought bloc taxation of income on interest income exceeding Rs5 million, capital gains on sale of immovable property of Rs5 million and property income into normal taxation regime.

The FBR has taken additional revenue measures of Rs383 billion in all major taxes including income tax, sales tax/ federal excise duty and customs duty and provided relief of Rs119 billion. Net addition stands at Rs264 billion. The government reduced the tax rate on capital gain tax on disposal of securities from 15 to 12.5 percent. The FBR has taken customs duties measures of Rs52 billion and relief measures of Rs42 billion. The net impact of the customs duty measures stood at Rs10 billion.

Sales tax/federal excise measures stood at Rs215 billion whereas sales tax relief totaled at Rs19 billion. The net effect of the sales tax measures comes to Rs196 billion. The income tax measures have been projected at Rs116 billion whereas relief of Rs58 billion has been provided. The net impact of the income tax measures totaled at Rs58 billion.

The FBR will rely on consumption taxes to fetch additional Rs196 billion in the shape of sales tax and federal excise duty as FED on mobile phone calls and SMS at Rs1 per call (call exceeding three minutes) and Re0.10 per SMS will generate additional Rs70 billion in the next fiscal year.

The levy of FED on internet data usage at the rate of Rs5 per GB will fetch additional revenue of Rs30 billion. However, after budget Minister for Energy Hammad Azhar tweeted that: “The PM and Cabinet did not approve the FED levy on internet data usage. It will not be included in the final draft of the Finance Bill (budget) that is placed before parliament for approval.” SAPM Dr Shahbaz Gill also tweeted that the cabinet did not approve the increase in data levy to facilitate masses. The removal of zero-rating on crude oil and other items tax at rate of 17 percent will bring Rs38 billion.

The FBR has taken another major revenue measure as the domestic electricity bill above Rs25,000 per month and the user does not exist on active taxpayer list, adjustable withholding tax has been imposed. The FBR has abolished 100 percent tax credit for new industrial undertaking if investment is made through equity or proportionate tax credit if investment is made through equity as well as debt and this corporate sector revenue measure will fetch Rs65 billion into FBR kitty.

The FBR has reduced the rate of withholding on mobile phone services from 12.5 percent to 10 percent for the budget. On relief aspect, the FBR abolished 12 withholding taxes including banking transactions, air travel, stock exchange, CNG, petroleum products, international debit credit card transactions, and extraction of minerals for providing relief of Rs15 billion.

The rate of minimum tax was reduced from 1.5 percent to 1.25 percent for all persons, for refineries from 0.75 percent to 0.5 percent, fast moving goods sold by integrated retailers from 1.5 percent to 0.25 percent, SEZ enterprises from 1.5 percent to 0 percent and special technology zones enterprises from 1.5 percent to 0 percent.

The sales tax has been reduced from 17 percent to 12.5 percent and withdrawal of value added tax (3 percent) on motor vehicles up to 850 cc. The government granted exemption from FED on motor vehicles up to 850 cc. The sales tax was reduced from 17 percent to 1 percent on locally manufactured electric vehicles and granted exemption on ST, FED, AST on import of CKD kits.

Tariff rationalization of textile sector on 584 tariff lines will provide relief of Rs11 billion. The exemptions of customs duties on raw materials, chemicals and other inputs are on 241 tariff lines. The FBR reduced customs duty on import of inputs of food processing industry from 3 percent to 0 percent.

The FBR provided incentives on raw materials for dairy sector as exemption on vaccines & feed additives is proposed. The FBR provided incentives on raw materials for Poultry Industry as reduction/exemption of CD and ACD on medicaments and feed additives.

The FBR has rationalised customs duty on import of mobile phones as it will generate additional Rs16 billion in the fiscal year 2021-22. The FBR increased regulatory duty on 83 miscellaneous non-essential/ luxury good in the budget.

The shifting of goods from reduced rate to standard rate will bring additional tax of Rs 35 billion. The withdrawal of exemption on imported luxury food items like cereals, milk and cream, frozen meat and sausages, fat filled milk at standard rate of GST of 17 percent will fetch Rs14 billion. The FBR increased RD on import of tyres by 5 percent to 10 percent. The FBR has levied 10 percent RD on import of uncoated paper & paper board, neutral glass tubing & pencils and crayons to protect the local industry.

On enforcement side, the FBR has placed master bill of lading and certificate of origin made mandatory in order to discourage concealment. The FBR also extended anti-smuggling regime to retailers.

On telecommunication services, the rate of GST is harmonized and bring down rate from 17 percent to 16 percent for Islamabad Capital Territory. The government has granted exemption from FED to industrial units located in FATA and PATA.

The sales tax relief has been provided on high quality printing paper for Holy Quran and temporary imports by international athletes. The increase in the threshold of turnover for cottage industry has been enhanced from Rs3 million to Rs10 million.

The export proceeds of services to be taxed at 1 percent at par with goods and this measure will bring Rs5 billion revenue in the kitty. For discouraging “own” money, penal additional tax on sale of vehicle will be imposed from Rs50,000 to Rs200,000 on basis of capacity of engines of cars prior to registration.

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