KARACHI, June18: Member Direct Taxes and additional secretary Federal Board of Revenue (FBR) Usman Khalid Mirza has said that the huge revenue target of Rs1,250 billion set for 2008-09 would be an uphill task to achieve under present bleak economic scenario.

However, he said that in the budget-making process the focus was mainly on two fundamentals — rationalisation and realisation — which helped a lot to mitigate the harsh measures otherwise, could have been taken to meet the revenue budget.

Speaking at a post-budget seminar organised by the Income Tax Bar Association Karachi (ITBAK) on Tuesday evening, the FBR member dilated on broad contours of the finance bill 2008.

However, Usman Mirza said in formulation of the budget the FBR tried to work on import regime, which was causing huge trade deficit. Consequently, it introduced a uniform rate of two per cent withholding tax on import of raw material by manufacturers and commercial traders.

He said the previous arrangement of five per cent withholding tax on import of raw material by commercial importers and one per cent by manufacturing sector was being massively misused.

Similarly, Mr Mirza said rationalisation of tax rate on charitable donations for all shall now be 10 per cent of the taxable income from previous rate of 30 per cent for Association of Persons (AOP) and 15 per cent of companies’ total income.

Referring to a critical appraisal made by All Pakistan Income Tax Bar Association President Syed Naved Andrabi on the investment tax allowing taxpayers to whiten their undisclosed assets on payment of 2 per cent tax, the member FBR said it was more of a move to broaden tax net than a revenue measure.

He said after studying the Egyptian tax system, the FBR also introduced investment tax under which no questions were being asked from persons availing this opportunity to whiten their undeclared wealth.

Mr Andrabi in his paper on finance bill, 2008, had said that the whitener scheme will encourage and flourish black money because it has not fixed any penalty or prosecution for having undisclosed income for any year or years. He was of the opinion that this would discourage taxpayers and encourage people with black money because at the end of the day they can get away on paying simple 2 per cent tax.

The FBR member direct taxes further said that it was decided as a policy matter to remove all the 35 exemptions given to different segments of taxpayers. He emphasised that taxability has to be determined as per Income Tax Ordinance 2001 and not on selective exemptions.

Responding to a critical appraisal given by Mehmood A Razzak, the member said taxing real estate was necessary as it did not contribute significantly towards national exchequer. They sell constructed units or developed plots by brining them in the net it will help broaden the tax base.

In reply to Syed Muhammad Shabbar Zaidi, president SAFA was highly critical for ignoring agriculture and manufacturing sector in the last five years and said any growth based on services sector could not be termed as real growth.

He said even lesser growth achieved through agriculture and manufacturing sectors could be dependable and reliable instead of achieving a 7.5 per cent GDP growth based on services sector. However, he said there was an urgent need to lessen profit margin of trade against industry, which will help the country to industrialise faster because presently trade was having an edge over industry.

He hinted that honeymoon of the banking sector was about to come to an end because the spread will be squeezed. Mr. Zaidi also anticipated that bad debts will also increase in coming days, which will finish the consumerism in the country.

He said if the country had to go for VAT system of collection of sales tax then there was no question that provinces should be collecting it because all over the world it is adjusted at every stage and it could only be done if it is collected on national basis.

Mr Zaidi suggested that instead of bringing the GST to provincial ambit there was a need to amend the concurrent list so that it could be removed from the provincial subject.

Earlier, ITBAK President Abdul Qadir Memon congratulated the team members of FBR for presenting the federal budget 2008 in the unfavourable economic circumstances.