Budget 2010 has been presented simultaneously at the same time when our costal boundaries are in danger with sea storm ‘Phet’. Sea Storm came and gone and all the matters now in the settling stage but our budget is still the core issue for all of concerns. Many criticisms and many falsified factual facts have presented on this Budget.
At the outset, if I say this budget has nothing for common men, its true, most of the relief measures related to FATA/PATA [Frontier Areas] and slightly relief in the taxability on salary income but this will definitely offset with the revenue measures that have been proposed in Finance Bill.
On the other hand, the revenue measures that directly hit common men are as under:
· Levy of 0.3 percent advance tax on on all modes of encashment from Banks, various banking transactions including modes like withdrawals through purchase of Demand Draft, Pay Order, Online Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, if such transactions exceed threshold of Rs.25,000/- in a single day.
· 5 percent withholding tax on Inland Air Ticket
· Increase in sales tax rate 1 percent i.e. rate of sales tax rate increase from 16 percent to 17 percent.
· Increase in rate of Federal Excise Duty on Natural Gas from Rs. 5.09 per MMBTu to Rs. 10/- per MMBTu.
· Levy of 1 rupees Federal Excise Duty [FED] on per cigarettes aiming to discourage cigarettes habit.
· Levy of 10 percent FED on electrical appliance to discourage consumption of electronic items and to save energy.
Further, taxes position for companies is as under:
· Tax rate for small companies[1] is proposed to increase from 20 percent to 25 percent.
· Capital gain tax[2] is proposed ranging from 7.5 percent to 10 percent depends on the holding period.
· Turnover tax i.e. minimum tax on ‘sales of the company’ is increase from 0.5 percent to 1 percent.
There are two dimensions to analyze the above measures; either to criticize all the revenue measures irrespective of their nature and its impact or bifurcate good and bad separately.
Before going further for these revenue measures; understanding of the golden principles of taxation is mandatory. These are:
· Taxation system must be on ‘progressive basis’, i.e. higher the income, higher the tax and less reliance on indirect taxes.
· Tax exemptions must not be given to anyone who can pay tax; everybody must contribute to the economy.
It is our hard luck that our policy makers are precisely ignore these rules and imposed indirect taxes on those who are still aggrieved from the inflation and low income.
The other important factor that we can derive from our policies is that our policy makers are more prone of preventive measures rather than constructive measures. For instant, if we are lacking of electricity, levy tax on electrical appliances, closing the business at 8:00 PM; Saturday holiday. We don’t calculate the opportunity cost for all these measures. We don’t understand that more the economic activities more our economy nourishes and more we earn in term of tax revenues. Implicitly applying preventive measures without considering its impact might completely destroyed our industries and we are more trading state than agricultural/industrial state. This will lead to our dependency on the other countries to which we import and export. Such problems need to cater before it is too late to handle.
Now, if I say I am in favor of all the revenues measures imposed on companies, I am not wrong, because I know these companies can pay taxes. The person dealing with shares and securities must be taxed because they are earning gains. They need to be taxed. But on the other hand, indirect taxed are harsh one and directly affect to common men.
However, as I mention earlier, tax exemptions need to be reviewed with the above said principle. Currently there is a big question mark on our tax net[3]. Our fiscal deficit is estimated as 685 billion and more than 60 percent of our revenue is spend for defense and debt servicing[4]. Now, the big question is what to do?
The solution, in my view is three dimensional i.e.
· Serious steps need to be taken for reviving our industries and businesses. The better the economic activities, the better the revenue collections;
· Levying taxes to those who can bear more taxes; and
· Waiving off unnecessary exemptions.
Before concluding, some of these unnecessary exemptions in the Ordinance need to be reproduced. These are reproduced from Second Schedule from Ordinance:
“(53) The following perquisites and allowances provided or granted by Government to the Ministers of the Federal Government, namely:-
(a) rent-free accommodation in so far as the value thereof exceeds ten per cent of the basic salary of the Ministers concerned;
(b) house-rent allowance paid by Government in lieu of rent-free accommodation in so far as it exceeds five hundred and fifty rupees per month[5];
(c) free conveyance; and
(d) sumptuary allowance.”
“(55) The perquisites represented by the right of a judge of the Supreme Court of Pakistan or of a judge of High Court to occupy free of rent as a place of residence any premises provided by Federal or Provincial Government, as the case may be, or in case a judge chooses to reside in a house not provided by Government, so much of income which represents the sum paid to him as house rent allowance.
(56) The following perquisites, benefits and allowances received by a Judge of Supreme Court of Pakistan and Judge of High Court, shall be exempt from tax.
(1) (a) Perquisites and benefits derived from use of official car maintained at Government expenses.
(b) Superior judicial allowance payable to a Judge of Supreme Court of Pakistan and Judge of a High Court.
(c) Transfer allowance payable to a Judge of High Court.
(2) The following perquisites of the Judge of Supreme Court of Pakistan and Judge of High Court shall also be exempt from tax during service, and on or after retirement.
(a) The services of a driver and an orderly.
(b) 1000 (one thousand) free local telephone calls per month.
(c) 1000 units of electricity as well as (25 hm3 of gas) per month and free supply of water; and
(d) 200 liters of petrol per month.”
It should be noted that for normal salaried persons, all these perquisites are taxable at fair market value. Even, if employer give concessional[6] rate loans to their employees that is taxable at market rate. Keeping in view of the above, following disparity must be terminated.
At the end, I would only say, our politicians, our policy makers and all our intellectual need to seriously consider the upcoming economic challenges other wise we might loose the fascinating figures in the budget to say the Budget as “Awami Budget’.
Footnotes:
[1] Small company means company having capital of 25 million; annual turnover of 250 million; and employees not more than 250 employees at any time during the year.
[2] Previously capital gain is exempt in Income Tax Ordinance, 2001 [Ordinance]
[3] The number of taxpayers in the countries
[4] Repayment of debt [Principal and interest]
[5] It means only Rs. 550/ per month is taxable for Minister in respect of House rent allowance. The market rate rent even for small house is much more than Rs. 550/.
[6] Loans given by employer at reduced rate than the rate of interest prevailing in the market.
