Centre, provinces agree on taxing real estate, services

[Naveed Yaseen]

* Finance secretary says new tax will improve overall tax-to-GDP ratio

ISLAMABAD: The federal government and the four provincial governments have agreed to impose a capital gains tax (CGT) on the real estate sector and a general sales tax (GST) on the services sector to improve economic activity, Federal Finance Secretary Salman Siddique said on Monday.

Siddique was speaking to media at Parliament House following a meeting with the finance secretaries of all four provinces that discussed in detail the Real Estate Investment Treaty (REIT), CGT on real estate and GST on services. He said the tax would be classified as provincial taxes and the provinces would levy these in their respective budgets for the next fiscal year. This would improve the overall tax-to-GDP ratio of the country and reduce the provinces’ dependence on the federal government.

He said the federal government wants increased revenue for the provinces as well as enhancing in their capacity to impose and collect taxes from their own tax base. He said that initially a maximum of Rs 30 billion was estimated to be collected from the 4.5 percent GST on services, adding that the federal government wanted each province to levy this tax at a uniform rate and on the same services categories. Money received from the Friends of Democratic Pakistan forum, that is expected to arrive in the 2009-10 fiscal year, would find its way into the system and help improve allocations for the social sector, the finance secretary said. Replying to a question on an increase in the salaries of government employees, he said it was expected that the government would increase the salaries in the budget. It is still to be decided, however, what this increase shall amount to.

He said the REIT concept is the new way forward as millions of acres of land is lying unused and its optimum utilisation would be ensured through the REIT.

PSDP: He said the overall size of the Public Sector Development Programme would increase beyond the Rs 600 billion recommended by the Annual Plan Coordination Committee.

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