Senate body directs FBR to finalise CGT rules

[Salman]

Senate body directs FBR to finalise CGT rules

ISLAMABAD: The Senate’s Standing Committee on Finance here on Wednesday directed the Federal Board of Revenue to finalise capital gains tax (CGT) rules on sale of immoveable property in consultation with all four provinces for uniform valuation of immovable property in the country.

The committee on finance met here under the chairperson Nasreen Jalil to review the Finance Bill 2012-13.

The Ministry of Finance and Federal Board of Revenue (FBR) expressed their inability to accept proposal on reduction in general sales tax (GST) rate from 16 percent to 12 percent saying that this would result in massive revenue loss.

The FBR requested the committee to direct property registrar offices in all four provinces to collect on behalf of the FBR 10 percent CGT on sale of property within one year and 5.0 percent CGT on sale of immovable property within two years after purchase.

The committee decided to recommend the government to impose income tax on income above taxable limit from all sources irrespective of any sectors.

The tax authorities informed the Senate’s Standing Committee on Finance that the government will bear a dent of Rs 45 billion if GST rate was reduced from existing 16 percent to 15 percent.

The committee was informed by the officials of the Finance Ministry that major reform in the sale tax for the next fiscal year was to abolish 19.5 percent and 22 rates and now across the board 16 percent sale tax rate has been implemented, this is a major relief.

Finance Secretary Abdul Wajid Rana on the proposal of reducing GST rate from 16 percent to 12 percent said, the reduction in sales tax rate in this massive way would result in massive loss to the national kitty and lead to decrease in share of provinces in the divisible pool, which may not be acceptable to them.

He said that out of the total sales tax collection, provinces’ share is 57.5 percents, which would decline in case of reduction in sale tax rate. The secretary was of the view that gradual increase in tax-to-gross domestic product (GDP) ratio would enable the government o reduce the sales tax rate as well as corporate tax rate and immediate 4.0 percent reduction would have considerable impact on the revenue. However, some members of the committee were of the view that increase in tax rate has reduced registration of taxpayers with the FBR.

FBR member Shahid Hussain Asad said that proposed deduction of 1.0 percent withholding tax (WHT) from dealers, wholesaler and retailers by the manufactures is considered very important for the documentation of the economy.

When some senators described deduction of WHT from manufacturers as unfair and unjust, another official of the FBR said that it is not possible for the tax authorities to collect WHT from traders and retailers and this trend of assigning manufacturing as withholdings agent was prevalent even in the developed countries.

The committee recommended that income from all the sources above taxable limit should be taxed and agreed to the proposal of the committee that WHT should be reduced from proposed 1.0 percent to 0.25 percent for unregistered dealers, distributors and retailers who make purchases from registered manufacturers. FBR Inland Revenues member informed that 1.0 percent WHT deduction proposal from unregistered dealers, distributors and retailers is not meant for revenues but for documentation of these undocumented sectors for increase in tax-to-GDP ratio.

He said that those unregistered dealers, distributors and retailers who would be paying 1.0 percent WHT on their purchases would be allowed to adjust this in their final tax liability when they would be filing their income tax returns.

The committee decided that FBR would give a separate presentation to the committee after the budget session by taking on board the State Bank of Pakistan and Ministry of Finance.

The standing committee also proposed unanimously to the FBR for formulation of rules on assessment of value of the asset or immovable property in consultation with all the four provinces for imposition of 10 percent and 5.0 percent CGT to avoid possibility of litigation.

The finance secretary also informed the committee that CGT on sale of immovable property within one or two years would help discourage speculation in real estate sector as well as unjustified increase in prices of properties in the country. He also requested the committee to direct property registrar offices to collect CGT on immoveable property on behalf of FBR.

It was informed that without this collecting mechanism, it would not be possible for the FBR to ensure its collection. The FBR officials also informed the committee that CGT on immovable property would be adjustable against the final income of the taxpayers.

Those taxpayers who would be filing their income tax returns would get this CGT against their final tax liability.

The FBR official informed the committee that the power for valuation of assets is already with the income tax officials; however, the FBR intends to curtail their powers and wants centralised valuation of rules applicable for the entire country.

The committee also recommended increase in import duty on crude palm oil from Rs 8,000 to Rs 9,000 per metric tonne to make this duty equitable for the entire edible oil industry.

Senator Ilyas Bilour informed the committee that only five oil refineries are being benefiting from this incentive and the remaining 300 ghee and cooking oil units are suffering losses from this discriminatory duty structure for a certain lobby.

FBR customs chief also supported the proposal and said that they have no objection on increase in import duty on crude palm oil.

While debating extending tax net on income from all sources, there was hot debate on income from agriculture and it was decided to recommend the government to impose income tax on income above taxable limit from all sources irrespective of any sectors.

Members of the committee rejected the proposal to convert Prime Minister’s House to an education institute and said that in all the countries these kinds of residential accommodations are maintained.

FBR Inland Revenues member objected to the proposal to register all the air travellers as income taxpayers and was of the view that people travel for employment, education, business and religious purposes and they all can’t be registered as income tax payers.