TAX NEWS APRIL 08, 2016

1.      Tax collection to provinces: FBR chief presents overview

April 08, 2016

The Federal Board of Revenue (FBR) has informed provinces that the tax machinery would achieve the revenue collection target of Rs 3,104 billion set for 2015-16 provided the economy escapes any major shock during the remaining part of the financial year. Sources said on Thursday that the Chairman FBR Nisar Muhammad Khan briefed the provinces on the performance of tax machinery during the last meeting of Provincial Finance Secretaries held under the Chairmanship of Federal Finance Secretary in the Finance Division. The meeting was held to review the fiscal operations for the last eight months of current fiscal year. 

During the meeting, Chairman, FBR presented a brief overview of the tax collection during the period and stated that up till now the position was very encouraging. He was optimistic to achieve the target of Rs 3.1 trillion set in the budget. Responding to a query he stated that the tax collection does not show a uniform trend in each quarter, therefore, FBR has set different targets for each quarter, based upon historical trends. He informed that during the 1st quarter, there was a shortfall of Rs 40 billion. As a result of measures taken by the government, not only the gap was recovered during the second quarter rather they exceeded the target. He informed that the position during third quarter was equally encouraging and expressed optimism to achieve the revenue target of Rs 3104 billion set for the current financial year provided the economy escapes any major shock during the remaining part of the financial year. Federal Finance Secretary emphasised upon the provinces to maintain financial discipline and ensure providing surpluses as per budgeted targets, in order to avoid any awkward situation. 

Joint Secretary (PF), Finance Division made presentation on provincial fiscal operations and highlighted combined as well as Province-wise details of own receipts and expenditures during the past eight months of current financial year 2015-16. He informed that during the first eight months, Provincial own receipts (combined) remained 49% and the expenditures stood at 47% of BE. He presented a comparison of Provincial own receipts and expenditure with the corresponding period of the last financial year, which registered an increase of and 29% 12.8 % respectively. 

White presenting Province-wise position, in the case of Punjab, it was observed that both the current and development expenditures were relatively on higher side as compared to other Provinces. However, if compared with corresponding period of the last financial year, there was 30% increase revenue receipts and 17% increase in the expenditure. Non-tax revenue of Sindh were observed very low (21 % of BE) as compared to other Provinces. The overall position of other two provinces, Balochistan and Khyber Pakhtunkhwa (KPK) showed a normal trend. JS(PF) also presented a snapshot of Federal Transfers to Provinces. The higher percentage in the case of Balochistan was due to the fact that their share has been guaranteed at the level of budgeted figure. With regard to cash balance position with SBP, it was informed that increase in the cash surpluses during the first half of the FY touched the figure of Rs 188 billion. However, they decreased to Rs 158.0 billion by end February, 2016. 

During the presentation, the chair asked several questions related to fiscal operations of the provinces and sought clarification/ comments. FS, Punjab informed that Punjab Revenue Authority had an ambitious target of Rs 72 billion for GST on services for the current financial year. Out of the total tax target of Rs 160 billion, Rs 72 billion was set as target for GST on services. He hinted that PPRA would be able to collect about Rs 60 billion by the year end. As regard other tax and non tax revenues, he was optimistic to achieve the target. FS Punjab assured that they would make all out efforts to achieve the surplus target provided the issues pending with the Federal Government were resolved. Federal Finance Secretary extended full cooperation of Federal Government to resolve the issues. 

Additional Secretary Finance, Sindh informed that the non-tax receipts mainly consist of land transactions, which due to ban imposed by the Supreme Court, were low. With regard to development expenditure, he informed that he expected more expenditure during the last quarter. Additional Secretary Finance Sindh expressed confidence to achieve the surplus target. 

FS, Khyber Pakhtunkhwa admitted that the position of non-tax receipts were unsatisfactory, mainly, due to non receipt of Net Hydel Profit (NHP) arrears. He informed that an MOU has been signed between the Federal and Khyber Pakhtunkhwa Governments to resolve the long pending issue of NHP. This would enhance the non-tax receipts of KPK. With regard to current and development expenditure, he informed that the existing trend will continue during remaining period of the current financial year. Federal Finance Secretary advised FS KPK to adopt Punjab model for utilising debt facility available under the decision of the ECC, which would not disturb the budget but at the same time would create fiscal space for development purposes. He advised Co-ordinator (Budget) to share the information in this regard with FS KPK. 

Satisfaction was expressed on the overall trend of provincial own receipts and expenditures and financial discipline in Balochistan. Co-ordinator (Budget) informed the position of the cash surpluses of the provinces as on 31st December 2015 which were increased to the extent of Rs 188 billion over and above the balances as on 30th June, 2016. He said that the provinces were almost around the target. He requested the provinces to maintain this level during the third quarter also, sources added. 

2.      Potential taxpayers'' data termed ''non-actionable''

April 08, 2016

Federal Board of Revenue (FBR) has termed the potential taxpayers'' data of 3.5 million people ''non-actionable'' and hinted at the possibility of increasing the cost for non-filers in the budget for the next fiscal year. Speaking in the meeting of Senate Standing Committee on Finance chaired by Saleem Mandivwala, chairman FBR Nisar Khan hinted at the introduction of a plan to increase the cost for non-filers in the next budget, saying that some measures are under consideration. 

The Chairman FBR stated that as the 3.5 million data, gathered by Nadra during the previous government, is of frequent travellers as well as of those having luxurious vehicles and huge assets it is not actionable; that is why the present government decided to increase the cost for non-filers. 

"We have been able to collect Rs 14 billion during the last seven months through withholding tax the government imposed on banking transactions of non filers imposed in budget for the current fiscal year," he added. He said that the number of income tax filers has increased from 0.7 million to one million during the last two- and-a-half years. The committee chairman also asked the FBR to devise a mechanism to block the CNICs of non-filers to force them to file their tax returns. Giving a report on the implementation of the committee''s recommendations of August 27, 2015 that the decision of the government regarding imposition of sale tax on local powdered milk should be reviewed and sale tax be withdrawn, the FBR stated it was unable to do so because of international obligations. 

He stated that before amendments were effected through the Finance Act, 2015, milk and dairy products were either conditionally zero-rated or exempt from payment of sales tax. The government through the Finance Act, 2015 amended the Sales Tax Act, withdrawing zero-rating on various items including powdered milk. The government decided that under a brand name in retail packing the sales tax was applicable at a reduced rate of 10 percent. 

The Chairman FBR did not agree to the suggestion of the committee that sale tax on locally produced milk powder should be withdrawn, saying "we cannot do this due to global obligations as this is binding in the WTO agreement on trade and tariff." The committee suggested to the FBR that it impose a Regulatory Duty (RD) on imported milk to create at least 5 percent difference in prices of local and imported powered milk to encourage the local industry. The Chairman FBR stated that RD was not very advisable and agreed that some other mechanism will be explored to benefit the local milk powder producers. 

3.      KTBA suggests withdrawal of WPPF, WWF

April 08, 2016

Karachi Tax Bar Association (KTBA) has claimed that around 75 percent of the Workers' Profit Participation Fund (WPPF), which is five percent of companies' profit, is not serving its purpose and going to the government. In its budget proposals for the year 2016-17, KTBA said that companies, in addition to the corporate tax, paid a Workers Welfare Fund (WWF) at the rate of 2 percent of their taxable income and WPPF at the rate of 5 percent of their profit; resulting in a tax impact of approximately 40 percent. 

The bar is of the view that this sort of levy discourages the existing manufacturers from expanding their business in Pakistan and at the same time keeps away foreign investors from setting up manufacturing operations in the country. 

Besides, this levy increases the cost of doing business in Pakistan and makes the products of manufacturers less competitive. KTBA said that with the increase in salaries, most employees were now above the threshold limit and, therefore, not entitled to any benefit from the levy of WPPF. "A bulk of the deduction goes to the government; studies show that around 75 percent of the total WPPF charge go to the government and only 25 percent is being given to the eligible employees," the KTBA claimed. 

KTBA proposed that instead of further burdening the taxpayers with WWF and WPPF, these levies might be withdrawn and an Endowment Fund might be created out of the existing funds available with the government. The profit earned from such a fund might be utilised for the benefit of the workers, KTBA suggested. It further suggested that companies should be allowed to utilise WWF and WPPF as Provident Fund for the benefit of their workers, such as, building schools, hospitals etc. KTBA observed that this would not only ensure benefits to the workers, but also lead to reducing cost of setting up businesses in Pakistan.