ISLAMABAD: The federal government introduced major budgetary measures on Monday by taxing more than 285 importable items, including furnace oil used in power generation, and increasing tax rates on all services following an agreement with the International Monetary Fund (IMF).

The decisions about the ‘mini budget’ were taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet led by Finance Minister Ishaq Dar. The ECC also endorsed drug pricing policy and export of wheat flour with a subsidy.

A senior official told Dawn that combined impact of additional revenue measures introduced on Monday and over the next couple of weeks had been estimated at about Rs150 billion in the remaining period of current fiscal year. These measures would help in partially offsetting the impact of about Rs200bn revenue shortfall anticipated by the Federal Board of Revenue (FBR) and additional Rs110bn expenditures arising out of military operation in Waziristan and resettlement of internally displaced persons (IDPs).

Dar and FBR spokesman Shahid Hussain Asad did not respond to questions about the size of budgetary measures. Another senior official, however, said the tax advisory committee had been consulted over the fresh revenue measures and the prime minister had cleared them earlier in the day on the request of the finance minister who also briefed him on successful completion of talks with the IMF last week in Dubai.

An official statement said the decisions regarding taxation measures were taken on a summary forwarded by the FBR.

Higher WHT for non-filers

The ECC approved higher rates of withholding taxes (WHT) for importers and service providers who are non-filers of income tax returns, saying this will encourage return filing and documentation in economy. These rates have been increased by 1.5 per cent to 9pc on various sections.

For example, the rate for the transport sector was increased from 2pc to 3pc while the services of persons on other companies were increased from 8pc to 12pc and other than companies from 10 to 15pc. However, the government did not make public the new rates that would be notified over the next few days through statutory regulatory orders (SROs).

Major services in the list include financial services, consultancy, banking, telecom, travel, doctors, lawyers and cricketers etc.

The statement said the proposed rates to be revised are in respect of non-filers only. The rates of WHT shall remain unchanged for compliant taxpayers who file their returns regularly and whose names appear on active taxpayers’ list.

“The distinction of filer and non-filer is being extended to these sectors to increase cost of doing business for non-filers and to encourage compliant-taxpayers,” the statement said.

Earlier, through Budget Act 2014-15, a distinction was created amongst filers and non-filers and higher rates of WHT were levied on non-filers to increase their cost of doing business for certain transactions including sale and purchase of immovable property, purchase of vehicles, issuance of dividend, cash withdrawals from banks, etc. This had shown good results and hence their WHT have now been increased.

Increasing rates of WHT for non-filers will provide incentives to those taxpayers who have been filing their returns regularly. This aspect has been kept in mind while increasing WHT rates. However, those non-filers who want to come into mainstream by filing their tax returns can avail concessional rates available to filers once they file their returns and are included in active taxpayers’ list.

Luxury items

The ECC also approved 5pc increase in regulatory duty on import of ‘luxury items’. It said the international prices of luxury items, like packaged foodstuff, chocolates, cosmetics and electric appliances, etc, were showing a declining trend, negatively affecting the revenue of the government. “These items are not of daily use, and are purchased by high-end consumers,” said the Ministry of Finance.

Furnace oil

For the first time, the ECC also imposed 5pc regulatory duty on import of furnace oil which is used by power plants for electricity generation. This alone is estimated to generate Rs8-10bn in the five remaining months of the current fiscal year.

The ECC said that because of tremendous decline in oil prices, sales tax on petroleum products was recently increased from 17pc to 27pc, but tax rates on import of furnace oil were kept unchanged. There has been a decrease of around 50pc in international prices of furnace oil. For meeting partially the revenue loss on account of huge fall in prices, it has been decided to levy regulatory duty at 5pc on import of furnace oil.

This will be used as a cushion against increase in prices if and when the international prices start to go up again, the duty would be withdrawn, the finance ministry said, claiming “this will not have any effect on energy tariff”.

Metal scrap

The ECC also imposed 5pc regulatory duty on import of metal scrap. It said the international prices of metal scrap were also consistently falling but there had hardly been any pass-on effect of the decrease on consumers, as prices of goods manufactured from metal scrap have not come down.

On the proposal of FBR for withdrawal of sales tax on cotton oil seed cake, the ECC decided that the sales tax currently payable at 5pc of the value of Cotton Oil-seed cake will be withdrawn with immediate effect subject to Pakistan Cotton Ginners’ Association agreeing to becoming the withholding agents for collection of 2pc sales tax on cotton seed with effect from July 1, 2014.

Flour export

On a proposal from the Ministry of National Food Security and Research for enlarging the scope of export of wheat, the export of wheat flour (atta) was also allowed by the ECC. It will be mandatory for the exporters to export one tonne of wheat flour (atta) to claim subsidy for equal quantity of wheat procured from the provincial food departments of Punjab and Sindh.

In an earlier meeting of the ECC, Punjab and Sindh were allowed to export 1.2 tonnes of wheat. The ECC directed that the rebate claims of the exporters will be entertained without any delay on the submission of the necessary documents by the exporters. This was allowed due to more than five million tonnes of surplus wheat stocks.

Drug pricing policy

The ECC also approved the long standing “Drug Pricing Policy”. The draft policy has been discussed with all stakeholders. The statutory process will be completed under the rules of the Drug Regulatory Authority of Pakistan (DRAP).

The policy seeks to link the registration and pricing of new chemical entities (NCEs) with Bangladesh and India and freeze the maximum retail prices of all drugs at the approved level as of Oct 31, 2013 and till June 30, 2016.

Effective July 1, 2016, annual increase in drug prices shall be linked with consumer price indicator (CPI) of the immediately preceding financial year. Manufacturers and importers could increase their existing maximum retail prices of scheduled drugs up to 50pc of CPI (with a cap of 4pc) and that of non-schedule drugs up to 70pc of CPI (with a cap of 6pc) once in any financial year.

The calculation of revised maximum retail price shall be intimated to the DRAP at least 15 days before increase.

Published in Dawn, February 10th, 2015

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