Flood tax on imports and income likely

[Lahore_Real_Estate]

ISLAMABAD: The government has decided in principle to impose a two per cent flood tax on all imports to generate about Rs50 billion in additional revenue for undertaking reconstruction and rehabilitation projects.

This will be in addition to a 5-10 per cent flood surcharge on all incomes exceeding Rs300,000 per annum, including salaries and profits, not only for individuals but also for associations of persons, companies, businesses and traders.

A senior government official told Dawn on Tuesday that the two additional taxation measures — tax on imports and incomes — were currently being discussed with the International Monetary Fund (IMF) and after fine tuning would be tabled before the federal cabinet for approval at a meeting soon after Eid-ul-Fitr.

The official said the proposed taxes would be imposed initially for the current year, but could be considered for continuation into the next financial year (2011-12). These two measures were expected to generate up to Rs150 billion, including about Rs100 billion from flood surcharge on incomes.

He said two proposals were under consideration regarding a flood levy on imports. The first envisages a five per cent tax on all imports, including essential items. The other envisages a 20 per cent tax on import of luxury items. In both cases, the additional revenue impact would be around Rs50 billion.

The government has yet to decide if the flood surcharge be imposed at a rate of 5 per cent or 10 per cent on all incomes exceeding Rs300,000 per annum. In case of 10 per cent tax rate, the overall revenue impact has been estimated at around Rs100 billion. The flood surcharge on incomes will be over and above the normal tax rates being charged every month to tax payers.

The additional taxes, sources said, will be within the ambit of the IMF programme under which various major adjustments would be made in the macroeconomic indicators approved by the parliament as part of the federal budget and committed to with the international lending agencies.

The cumulative impact of new revenue measures coupled with an increase in the fiscal deficit limit from four per cent of GDP to five per cent, would create an additional fiscal space of more than Rs250 billion. Moreover, another Rs250 billion in savings carved out of development budget by freezing federal and provincial allocations at last year’s level would be diverted to flood related reconstruction and rehabilitation.

Informed sources said the entire re-doing of the federal budget and macroeconomic indicators would be presented before the federal cabinet by the economic team, led by Finance Minister Hafeez Shaikh, for formal approval.

They said the government was also considering taking all political parties in parliament into confidence over the budgetary adjustments so that they enjoyed wide ownership and may have to seek the parliament’s nod over the next few weeks so that its implementation could come into force with effect from Jan 1, 2011.

Before that time, the damage need assessment of the devastation caused by floods would be completed by Sept 25 while reformed general sales tax would also come into force on Oct 1, the official said.