CGT on real estate, services likely in budget

[LahoreEstate]

ISLAMABAD (May 27 2009): The government is likely to impose capital gain tax on real estate and sales tax on services sector in the 2009-10 budget through consensus with all provincial governments. Secretary Finance Salman Siddique told the National Assembly Standing Committee on Finance that broadening of tax base is critical because this is the only available option to generate revenue.

The new revenue measure could be capital gain tax on transfer of property or real estate and tax on services. Sharing revenue impact of such budgetary proposals, he said that approximately Rs 300 billion is expected in terms of revenue through taxation of services sector.

He was briefing the committee headed by Fouzia Wahab and attended by representatives of chambers of commerce about the plan to broaden the existing tax net as well as about the tax collection in the ongoing fiscal year and the problems faced by the authorities in this regard.

The secretary said that the federal government was discussing the matter with the provincial governments to evolve consensus. He said that services sector which counts at 53 percent of the Gross Domestic Product (GDP) is contributing negligible ratio in taxes; the aim is to tax services under the agreement with provinces and transfer its enforcement and collection to provinces when they are able to manage it in next 5-7 years.

He also hinted to tax the agriculture sector in next two years after consultation with provinces and said that this should be purely on income based. The government is trying its level best to promote agriculture sector and improving its profitability so that it can be taxed.

He said that the revenue target for the next fiscal was increased to Rs 1.405 trillion in view of new taxes as well as envisaged improvement in the existing tax base. The secretary assured the committee that not only the existing taxation system would be improved but also the recovery system to achieve the proposed target will also improve.

Responding to various queries on taxation status of businesses carried out by military, Secretary Finance said that all commercial concerns of military are being taxed under normal regime. However, establishments managing production for exclusively for armed forces are exempted from taxes. The commercial ventures of military are being taxed under normal law with no special treatment.

About the NFC, the Secretary said that upcoming budget for fiscal year 2009-10 would be prepared on Interim National Finance Commission Award under implementation from last few years. However, new NFC award would be finalised by first half (July-December) of the next fiscal year. To facilitate all the four provinces to reach an agreement, new NFC Award would be based on Divisible Pool and Subvention Pool. Revenue distribution from Subvention Pool to be on the basis of population, backwardness, fiscal efforts and development needs of the provinces, he added.

The government has decided to transfer Rs 300 billion including Rs 216 billion burden of circular debt and Rs 80 billion receivables from FATA to a holding company to manage it through borrowing from local banks. The government would bear the burden of interest payments on such loans and the said company would clear their loans after disposal off assets of the power entities in next five years.

Secretary Finance informed the Committee that to bridge the Rs 300 billion gap each Rs 4.1 billion requires 1 percent tariff increase in the country and total power tariff increase that is required at this point of time is 50 percent. However, due to the circular debt management measures, the existing required power tariff increase is estimated at 17 percent that should be passed on to the consumers.

The representatives of chambers called for taxing all incomes to become self-sufficient in revenue and broaden the tax bases. There should be no sacred cow and every sector generating income whether it is agriculture or services should be taxed.

They said that the industry has been penalised continuously and is no longer able to bear the burden further. The problem of high interest rate, input cost and energy crisis have affected its productivity to great extend, the added urging the government include other sectors such as agriculture, real estate, bourses and services should also be taxed.

The representatives of Federation of Chambers of Commerce and Industry; Karachi Chamber of Commerce and Industry and Islamabad Chamber of Commerce and Industry submitted budget proposals and shared their experience on implications of past budgetary measures.

http://www.brecorder.com/index.php?id=22...=&supDate=