ISLAMABAD: Taxation proposals in the budget, lowering the rate for some and raising for others, have obviously been dictated by political consideration.

In an election year, the ruling PPP would like to be seen providing relief to the low-income people but not being harsh to the rich.

The government proposes to raise additional taxes worth Rs63 billion, including sales tax and federal excise duty of Rs29 billion. The step will fuel inflation which will affect the poor.

The government not only spared the business from new taxation but also extended a relief of Rs2 billion in customs duties on a wide range of items.A package for whitening the black money was also made part of the finance bill for investors in the share market.

Although new tax measures worth Rs34 billion were announced in the budget, these were projected to be raised from the sectors where it will be a tough task for the tax machinery to collect revenue.

To woo voters, especially the salaried class and pensioners, the government has given a relief of Rs24.5 billion in income tax and Rs5.5 billion in sales tax.

Exemption threshold for the salaried people has been raised to Rs400,000 from Rs350,000. The number of tax slabs has been reduced from 17 to five but the maximum tax rate has been increased from 20 per cent to 25 per cent.

For the annual income of more than Rs400,000 but less than Rs750,000, the tax rate will be 10 per cent and for taxable income exceeding Rs750,000 but less than Rs1.5 million, it will be 15 per cent plus Rs35,000.

For people whose annual taxable income is above Rs1.5 million but less than Rs2.5 million, the tax rate will be 20 per cent plus Rs147,500 and for taxable income exceeding Rs2.5 million, the tax rate will be 25 per cent plus Rs347,500.

In a major policy shift, five normal progressive tax slabs have been extended to associations of persons (AoPs) along with exemptions threshold of Rs400,000. At present, AoPs are paying income tax at a fixed rate of 25 per cent.

To target a huge number of pensioners, income tax exemption was given on the amount received as monthly instalment from an income payment plan invested for 10 years out of the accumulated balances into a pension fund, annuity or individual pension accounts.

At the same time, the income of retirement/pension fund was exempted from deduction of withholding tax if 90 per cent of the profit was distributed as dividend. The small loan from the employer up to Rs500,000 has also been exempted from the income tax for employees.

However, the benchmark rate for loans above this limit shall be fixed at 10 per cent instead of the progressively increasing rate, which has reached 13 per cent. The accumulated balance of provident fund transferred to approve pension fund and any withdrawal from such funds will avail exemption from income tax.

The limit of cash withdrawal from banks has been enhanced to Rs50,000 from Rs25,000 and the minimum tax on turnover for the business community has been reduced to 0.5 per cent from 1 per cent. Honour cards will be issued for availing privileges and benefits to taxpayers who have filed tax returns and paid due taxes for the past five years.

To facilitate the business elite further, the government has exempted income tax on profits paid on intra-group debt but the income from profit on debt will remain taxable. The limit of investment eligible for tax credit has also been enhanced to 20 per cent from 15 per cent of the taxable income.

The limit of investment in securities or insurance premium has been increased to Rs1,000,000 from Rs500,000. The retention period of securities is also being reduced from three years to one.

The withholding tax has been exempted on payment of insurance premium or re-insurance premium to a non-resident; the exemption granted to profit and gains to the venture capital company and venture capital fund has been extended to 2024 from 2014; the initial depreciation on new building is reduced to 25 per cent from 50 per cent; and the value of vehicle has been enhanced to Rs2.5 million from Rs1.5 million for depreciation allowance.

The capital value tax at the flat rate of two per cent has been imposed in the Islamabad Capital Territory on purchase of property. And the capital gains tax (CGT) was imposed across the country on gains from property.

If property was sold within one year of its purchase, 10 per cent CGT would be imposed on profit. The rate will be 5 per cent if the property was sold after one year and within two years and there will be no tax if the property was sold after two years.

Officials claim the measures would yield more than Rs7 billion.

The government has allowed manufacturers to collect 1 per cent tax against sales to traders and distributors which will be adjustable against income. According tax officials, the step will yield Rs15 billion. The presumptive tax regime will be phased out in three years.

Dividend received by banks from money market funds and income funds over a period of two years will be taxed progressively.

For the tax year 2013, the rate of tax will be 25 per cent and 35 per cent for 2014.

The tax rate for passenger and transport vehicles has been enhanced to Rs500 per seat per annum from Rs100 for a vehicle for 20 persons or more and Rs5 per kg laden weight from Rs1 in cases of goods transport and vehicle. The step may yield Rs2 billion revenue.

The government has reduced sales tax on import of raw materials to 16 per cent from 22 per cent and 19.5 per cent and federal excise duty (FED) on cement to Rs400 per metric tons from Rs500.

The FED has been withdrawn on 10 items, including filter rod used in cigarettes. The FED exemption has been granted on livestock insurance and waste paper. Asset management companies have been granted FED exemption retrospectively.

The price tiers of cigarettes were enhanced to collect additional Rs10 billion FED.

Sales tax on the steel sector has been raised to Rs8 per Kwh from Rs6 Kwh to get extra Rs2 billion revenue.

The customs duty has been reduced to 30 per cent from 35 on 293 items, to 5 per cent from 10 per cent on 88 pharmaceutical raw materials and other input goods, to 20 per cent and 10 per cent from 25 per cent on self-copy papers and self-adhesive papers.

The duty on scrap of rubber/shredded tyres has been reduced from 20 per cent to 10 per cent and on hybrid electric vehicles and their batteries by 25 per cent.

The composite rate of duty on cinematographic film has been changed to a specific rate of Rs5 per metre.