New taxation system for builders, developers: new investment tax scheme makes assets

[CMY]

RECORDER REPORT
ISLAMABAD (June 12 2008): The government has introduced an 'investment tax scheme' for legalisation of movable and immovable assets on payment of 2 percent of its value; new taxation system for builders and developers; 10 percent withholding tax on electricity bills exceeding Rs 20,000 per month; progressive tax rates on rental income and basic limit of exemption from income tax for salaried person has been increased from Rs 150,000 to Rs 180,000.

Through Finance Bill (2008-09), the Federal Board of Revenue on Wednesday announced major budgetary measures including collection of 10 percent withholding tax on monthly telephone bills exceeding Rs 1000; withholding tax on cash withdrawal from banks has been increased from 0.2% to 0.3 percent; payments made to media companies outside Pakistan would be subject to 10 percent WHT to be treated as final tax and reduced tax rates on co-operative societies has been withdrawn, brining them at par with the rates applicable on companies.

According to the new fiscal measures, a new scheme for waiver of additional tax and penalty would be available to taxpayers, who would pay the principal amount of tax till September 2008.

Whereas, the profit transferred by a branch of foreign company out of Pakistan are proposed to be treated as dividend and chargeable to tax @ 10 percent as final tax.

In the case of bank no CVT is proposed to be charged on General Power of Attorney unless it is used into force the mortgage of property offered as collateral against a loan. In the case of a small company where the turnover exceeds Rs 250 million, the income attributable to the turnover exceeding the said limit, is proposed to be charged to tax at progressive slab rate of 25 percent, 30 percent and 35 percent, so that the company is able to progress still retaining its status of a "small company".

A new taxation system is being introduced for builders and developers, whereby the builder would be required to pay tax @ Rs 50 per sq. ft. of the covered area of a unit. The developer of open plots would be subject to tax @ Rs 100 per sq. yard of the plot.

In order to encourage and promote investment in business and industries, scheme of investment tax is being introduced, allowing immunity from probe in respect of any moveable and immoveable assets on the value of which tax @ 2 percent is paid. The minimum tax payable on the declared turnover @ 0.5 percent is being proposed to be withdrawn.

To facilitate general public, the basic limit of income tax exemption for salaried person has been increased from Rs 150,000 to Rs 180,000. In the case of a women salaried taxpayer the basic exemption limit is proposed to be increased from Rs 200,000 to Rs 240,000.

The concept of marginal tax relief for the salaried persons is being introduced to cater for the negative impact of taxation under the present flat tax rate system. The marginal increase in salary income is proposed to be taxed at the rates not exceeding 20 percent to 50 percent allowing sufficient relief in tax payable.

The existing exemption regime provided under the Second Schedule of the Income Tax Ordinance, has been reviewed to delete all redundant and unjustified exemptions.

Presently, gross rental income from property is chargeable to tax at a flat rate of 5 percent. It is proposed that no tax my be charged on income upto Rs 150,000 and tax income from this source on progressive rates of 5 percent, 10 and 15 percent. However, in the case of a company basic exemption of Rs 150,000 would not be available.

The government has also brought massive changes in the withholding tax regime. Presently, withholding tax rate of 5 percent and 1 percent is applicable in respect of commercial and manufacturer importers respectively. It is proposed to apply a uniform rate of 2 percent for both the categories of importers.

Similarly, withholding tax collected on electricity bills is being rationalised to collect the same @ 10 percent on bill amount exceeding Rs 20,000 per month which would be adjustable. Withholding Tax on bull amount of Rs 2000 and below would be collected at the previous rates.

The rates of advance tax, collected at the time of renewal of registration of private motor cars, are proposed to be rationalised by making about 30 percent to 40 percent increase in WHT rates.

The association of person and individuals having annual turnover of Rs 50 million respectively are proposed to be made withholding tax agents for the purpose of tax deduction on payments relating to on sale of goods, services rendered and execution of contracts.
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