Prime Minister Imran Khan on Monday formed a ministerial committee to consider proposals that aim for fair taxation by increasing the burden on the upper class, but strong political will is needed to take these steps.
The tax proposals include a sharp reduction in income tax rates for the corporate sector and employees, but include the levying of a new tax on assets to compensate for lost income.
A dozen tax proposals were presented to the Prime Minister and his economic team by the former Minister of Finance, Dr Hafiz Pasha. He had sought the advice of the country’s renowned economist a few weeks ago after another report on the Human Development Index painted a grim picture of Pakistan’s socio-economic conditions. The prime minister tasked Minister of Industries Hammad Azhar, financial adviser Dr Abdul Hafeez Shaikh and trade adviser Abdul Razak Dawood to review the proposals in detail so that recommendations that were applicable can be implemented, the office said. of the Prime Minister.
One of the main proposals was to immediately reduce the corporate tax rate from 29% to 20%, a meeting participant told The Express Tribune.
The previous Pakistani Muslim League-Nawaz (PML-N) government announced a five-year plan to reduce the corporate tax rate, but the PTI government halted the process.
To compensate for the loss of income due to a drastic reduction in the corporate tax rate, Pasha proposed to impose the Capital Value Tax (CVT) at the rate of 1.5% on all assets, at the property exception, according to government officials. The meeting was informed that the country’s constitution allows the federal government to impose CVT except on property. However, the PTI government, as a policy, abandoned the CVT and also removed it from stock trading in the FY21 budget.
CVT can also be imposed in cases where the government has granted income tax exemptions under the law to certain sectors, according to the proposal. Pasha reportedly informed the assembly that the tax on assets was more progressive in relation to income.
According to him, the richest 20% earn five times more than the lower 20%. But that chasm was much wider in the case of assets. The richest 20% have 12 times more assets than the poorest 20%, because higher income levels allow them to save money and create assets. It was also proposed to remove the income brackets for employees and entrepreneurs and to introduce more progressive rates.
Before coming to power, Prime Minister Imran promised to double tax collection from just 4 trillion rupees to 8 trillion rupees. However, in the first two years his government could not even hit the 4 trillion rupee mark. Uncertainty still reigns within the Federal Board of Revenue (FBR). There is no permanent chairman of the Revenue Board or a permanent director general of international taxes – another area in which the prime minister had promised to reclaim wealth hidden abroad.
Instead, the government has sat on information worth billions of dollars and it has been reported that an automatic exchange of information field unit has misused this information, well-placed sources have informed. at The Express Tribune.
Pasha also proposed the end of the current fragmented income tax system where different rates are offered for different companies and different industries. He sought to implement a uniform rate – a recommendation that requires strong political power to be implemented.
He also proposed to streamline the current tax system to tax rental income as the existing tax structure based on valuation tables was more regressive.
According to another key proposal, Pasha proposed streamlining the current structure of capital gains tax, especially for the real estate sector. However, this proposal could meet the opposition of various lobbies, the government having recently reached a compromise with the real estate sector by reducing the period of tax-exempt holding from eight years to only four years.
Currently, there is no capital gains tax if a property is sold after four years of purchase. Pasha proposed that instead of completely exempting the earnings, the rate should be lower if the holding period is longer. It was also proposed that tax credits granted to industrialists for the expansion or modernization of businesses, but which were withdrawn in the budget, could be reinstated.
Posted in The Express Tribune on September 15, 2020.
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