• Proposals include ‘luxury tax’ on big houses, big vehicles • Tax on rental income under consideration • DC rates likely to be revised • Regulatory duty to be raised on items

ISLAMABAD: The coalition government is mulling introducing a string of new tax measures in the upcoming budget to raise around Rs300 billion in additional revenue in 2022-23 (FY23) and is tasking the Federal Board of Revenue (FBR) to finalise areas and sectors in the next couple of days, Dawn has learnt from official sources.

The new tax measures include a proposal for a ‘luxury income tax ’ which will be a replica of a wealth tax if approved to tax real estate, including big houses in posh areas, while also bringing owners of luxury vehicles into the ambit of this tax as part of the deal to revive the stalled International Monetary Fund programme (IMF).

The broader directions from Prime Minister Shehbaz Sharif are to focus on direct taxation, especially taxing the income of the affluent class. The proposal also includes extending and effectively taxing rental income. There will be no title for a luxury tax in the budget documents, but the spirit is to tax the rich people. The government plans on avoiding taxing sectors or products that can affect poor people, sources said.

FBR tax proposals revolve around the principle to tax the incomes of rich people from all sources as per prime minister directives to the budget makers. However, incentives will be offered to attract investments and for ease of doing business.

To reduce the soaring import bill, further work has been started on identifying luxury items to be included in the list of banned items introduced on May 19 for a period of two months. However, there is no confirmation by the Ministry of Finance whether the list of banned items will be further increased or not. The chambers and industry representatives are already opposing this move by the government.

A senior official from the finance ministry confirmed to Dawn that new measures will only be around Rs300bn, which is 0.4 per cent of the gross domestic product.

“I can’t tell you anything specific,” the official said, adding that the finance ministry is opposing the IMF’s demands to raise the tax burden on the salaried class. “We have already opposed it,” he said. The demand was opposed in the last meeting with the Fund officials as well before the announcement of the next budget, he added.

The boom in real estate and the parking of billions of rupees in real estate in the past few years, especially because of the tax amnesty scheme offered by the previous government to the construction sector, is on the radar of taxation in the FY23 budget.

The sources said the proposed size of a house will be either above 1,000 or 1,500 sq yards, adding the size could vary and will need the final approval of the federal cabinet. Similarly, the engine capacity (cc) of the luxury vehicles will also be decided at the next meeting. More items may also be considered under the ambit of the luxury tax.

There is another proposal on the table to raise the valuation of properties for the purpose of taxes to bring them at par with market rates. Another proposal is to make it mandatory for real estate societies to submit the real-time withheld tax from buyers to the tax departments.

At the same time, the deputy collector rates for property valuation are still very low, and provinces will be asked to raise the DC rates across Pakistan. “We are expecting a lot of revenue from this sector,” the sources said.

The previous government has also made an attempt to raise the valuation table in 44 districts in order to bring it closer to the actual transactions of the property. However, a further increase in these tables is also on the cards, especially in Islamabad.

According to the sources, the proposals under consideration are to raise the rates of regulatory duties on the existing items on the Customs side. At the same time, there is also a proposal to identify new items which will be subject to regulatory duties.

The purpose of the exercise, according to sources, is to raise revenue as well as cut down the import bill.

At the same time, the Customs Department and Ministry of Commerce are also working on identifying new luxury items that could be included in the list of banned items to reduce the import bill. However, the proposal is at an initial stage and may need the approval of the high authorities.

On May 19, the government imposed a ban on nearly 800 items, which are expected to save only $300 million per annum. However, the industry and some officials from the FBR have opposed the move as it has created problems for the local industrialists as some of the banned items on the list include raw materials for industries. Interestingly, these banned items are being sold in the market.

The commerce ministry has already clarified that no ban will apply on raw materials, but industrialists claim they are facing problems.

There is another proposal on the table suggesting working out a plan with oil marketing companies to reduce consumption of petrol and diesel in the country instead of imposing a ban on the import of a few million-dollar products, which will cause disruption in the supply chain only. The import bill of the oil sector is expected to cross $20bn by the end of June 30.

Published in Dawn,June 7th, 2022