New mini budget increases burden of taxes, introduces new policy for revenue generation

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ISLAMABAD: The PTI Government in his mini budget for next nine months has reversed some incentives given to business enterprises and individuals through the Finance Act 2018. It has also enhanced the burden of taxes on some specific sectors to raise additional revenue for achieving the revenue collection target for the current fiscal year.

Cigarettes, tobacco, vehicles, mobile phones and several other sectors have been subject to additional tax measures. However, the minimum threshold remained unchanged for salaried and business individuals.

FEDERAL MINISTER FOR FINANCE, REVENUE AND ECONOMIC AFFAIRS ASAD UMAR PRESENTING THE FINANCE SUPPLEMENTARY (AMENDMENT) BILL 2018 IN THE NATIONAL ASSEMBLY, ISLAMABAD ON SEPTEMBER 18, 2018.

The government has introduced new policy measures, including but not limited to revenue measure, of around Rs103 billion along with an additional Rs75bn worth measures bracketed as ‘administrative measures’, according to a highly placed FBR source. The relief measures – mostly customs exemption on raw materials – have been estimated at Rs5bn.

The government has revised upwards the federal excise duty (FED) on cigarettes and tobacco. This measure will help to pocket an extra amount of Rs26bn. The duty impact of FED on price per 20-pack of cigarettes will be Rs12.5 for tier-1 brands and Rs11 for tier-3 brands. For tier-2, the impact would be around 7 paisas only. Impact on tier-3 brands is more as enhancement in duty is more due to low existing rates.

FED was also enhanced on unmanufactured tobacco produced by Green Leaf Threshing (GLT) units from Rs10 per kg to Rs300 per kg, which is adjustable against FED on cigarettes. GLT units will be subject to staff supervision to prevent leakages. Moreover, unmanufactured tobacco can only be sold to registered persons on active taxpayers list.

The regulatory duty was imposed on 312 new tariff lines — luxury and non-essential items — in the range of 5-20 per cent.

Similarly, the rate of regulatory duty was enhanced to 15pc from 10pc on 295 tariff lines and different slabs were introducing for mobile phones imports. These three measures will help the Federal Board of Revenue pocket additional revenue of Rs14bn.

FED on cars of 1800cc and above was increased to 20pc from 10pc. This will help raise additional revenue of Rs2.5bn.

At the same time, government has withdrawn the requirement for filing return for acquisition of real estate and motor vehicle.

Partially reversing income tax relaxations and reducing the development budget, the PTI government announced a supplementary budget on Tuesday with a total fiscal adjustment equal to 2.1 per cent of GDP (roughly Rs805 billion),

including Rs183bn worth of revenue measures.

A key reversal on the revenue side was elimination of the restriction on non-tax filers on purchase of real estate and automobiles. In the last budget of the PML-N government, a ban had been imposed on non-filers of tax returns to purchase new cars and property. The car manufacturers and real estate developers were up in arms against the decision that had plummeted car and property sales by up to 50pc.

The finance minister claimed that the ban was being removed because it was interfering in the ability of overseas Pakistanis to do business and invest in Pakistan.

Even with such a massive fiscal adjustment described by the minister as a ‘bypass surgery’, the target for fiscal deficit for the financial year 2018-19 was put at 5.1pc instead of 4.9pc set in the budget passed by parliament in May this year. Reforms will follow in about a month or so to put the economy on the road to recovery, he said.

Mr Umar said the supplementary budget for the current year had become inevitable because of severe economic crisis and necessitated by the “unrealistic” budget announced by former finance minister Miftah Ismail.

In that budget, he added, revenue collection was overstated by Rs350bn and expenditures were understated by Rs250bn and Rs286bn projected as cash surplus from the provinces was also unlikely to materialise when they jointly posted a Rs18bn deficit last year despite similar anticipated surpluses.