In a decisive move, the Senate of Pakistan has rejected the government’s budget proposal to increase the tax burden on both salaried and non-salaried business individuals. This decision also included a proposal to exclude the asset details of financially independent spouses from the wealth statements of taxes payers. These recommendations, which reflect significant fiscal policy positions, have been sent to the National Assembly (NA) for incorporation into the Finance Bill 2024-25. As Finance Minister Muhammad Aurangzeb prepares to address these recommendations, the implications for Pakistan’s economic landscape are profound.
Key Senate Recommendations
A significant recommendation from the Senate involves the inclusion of a taxpayer’s spouse’s asset details in the wealth statement only if the spouse is financially dependent. This proposal, if approved by the NA, could protect politicians and politically exposed persons from unnecessary scrutiny, potentially reducing politically motivated investigations.
Senator Saleem Mandviwalla, chairing the Senate Standing Committee on Finance, played a pivotal role in finalizing these recommendations. According to Mandviwalla, the finance minister has shown a willingness to accept most of these suggestions, indicating a collaborative approach between the Senate and the government.
Rejection of Increased Tax Burden
The government’s proposal aimed to increase the tax rate to 45% for non-salaried individuals earning over Rs466,666 monthly and to 35% for salaried individuals with a monthly income of Rs341,000. The Senate also opposed increasing tax rates for monthly incomes starting at Rs51,000. These proposed tax hikes were seen as excessively burdensome, particularly in the context of an already struggling economy. By rejecting these increases, the Senate sent a clear message to both the government and the International Monetary Fund (IMF) about its stance on fair taxation.
The proposal’s rejection has significant implications for the working class and small businesses. High tax rates can stifle disposable income and reduce overall economic activity, especially in an environment where inflation and cost of living are already pressing issues. The Senate’s stance suggests a priority on economic stability and consumer confidence, which are crucial for sustained growth.
Opposition to Capital Gains and Withholding Tax Increases
The Senate also opposed a flat 15% capital gains tax on property disposals starting July 1 and rejected the proposed increases in withholding tax rates for filers on property sales and purchases. These measures, if implemented, would have significantly impacted property market dynamics and potentially stifled investment in real estate.
Stakeholders in the real estate market have claimed that these taxes would discourage investment in the industry, which adds much to employment and economic activity. The Senate’s resistance highlights the necessity to continue creating a climate that is favorable to investors while looking for other strategies to increase the tax base.
Tax Exemption for FATA and Excise Duty on Property Transfers
The Committee rejected extending the income tax exemption for the erstwhile Federally Administered Tribal Areas (FATA) for another year. This decision reflects a shift towards integrating these areas into the national tax framework, which is essential for equitable development and resource allocation.
Furthermore, the Senate rejected a 5% federal excise duty on commercial property transfers. This proposed duty was viewed as an additional burden on the real estate sector, which is already facing numerous challenges.
Data Sharing and SIM Card Tax Proposals
The Senate also opposed sharing taxpayers’ data with the National Database and Registration Authority (NADRA) for analysis and broadening the tax base, citing privacy concerns and potential misuse of data. Additionally, the Senate rejected proposals to charge a 75% income tax on SIM cards of non-filers and to impose penalties on mobile phone companies for failing to block non-filers’ SIM cards.
These measures were seen as intrusive and counterproductive, potentially harming the telecom sector and infringing on privacy rights. The Senate’s rejection indicates a preference for policies that protect individual privacy while seeking efficient ways to enhance tax compliance.
Authority of the Federal Board of Revenue (FBR)
The Senate also rejected the government’s request to give the Federal Board of Revenue (FBR) the power to establish the minimum value of items for Section 148 advance tax collection. The Committee contended that doing so would give tax authorities unrestricted authority and provide opportunities for possible wrongdoing. In a similar vein, the Senate was against giving FBR members the authority of the Board-in-Council.
The FBR’s enhanced powers could have led to arbitrary assessments and increased opportunities for graft, creating an unpredictable business environment. The Senate’s stance highlights the importance of checks and balances in tax administration to ensure fairness and transparency.
Sales Tax Adjustments
The Senate made several recommendations regarding sales tax adjustments:
- Opposed: Increasing the sales tax on FBR-integrated shops from 15% to 18%, on hybrid vehicles from 8.5% to 25%, and on imported computers and laptops from 5% to 10%.
- Rejected: Imposing a 10% sales taxes on stationery items and an 18% sales tax on milk, infant milk, and local supplies of commodities, raw materials, components, parts, and machinery to registered exporters under the Export Facilitation Scheme.
- Supported: An 18% GST on cardiac surgery and other surgical instruments, diagnostic kits, oil cake, tractors, and machinery.
These suggestions are the result of strict analysis of how different taxes laws affect different industries. The Senate seeks to ensure affordability and accessibility by preventing further financial pressures on businesses and consumers by rejecting tax increases on necessities.
Financial and Corporate Sector Recommendations
The Senate also made several recommendations aimed at the financial and corporate sectors:
- Credit and Debit Card Transactions: Recommended that transactions above Rs35,000 should be mandatory to encourage economic documentation.
- Solar Industry: Proposed a uniform sales tax rate on parts related to the solar industry, whether imported or produced locally.
- FBR Capacity: Suggested filling 5000 vacant posts in the FBR to broaden the tax net, following proper merit-based appointment procedures.
- Corporate Debit Card Transactions: Recommended exempting corporate debit card transactions from the additional 5% taxes to avoid double taxation and promote the use of ESFCAs on foreign exchange earned by IT companies.
- Property Outside Pakistan: Proposed taxing people owning property outside Pakistan at a rate of 1% of the rental value of the property instead of its actual value.
- Credit Card Usage Limit: Suggested increasing the annual limit of $30,000 on credit card usage to at least $50,000.
These recommendations aim to enhance tax compliance and documentation while fostering growth in key sectors. The emphasis on digital transactions and the solar industry reflects a forward-thinking approach to modernize the economy and encourage sustainable practices.
Opposition to the Abandoned Properties Organisation Amendment
The Senate rejected a proposal allowing the Abandoned Properties Organisation to retain Rs14 billion of public funds and invest in government debt. Senator Anusha Rehman expressed strong reservations, arguing that this amendment contradicted existing law passed in 2019.
This decision underscores the Senate’s commitment to upholding legal frameworks and ensuring public funds are managed transparently and in accordance with established laws.
The Senate’s rejection of taxes hikes for workers and its detailed recommendations reflect a strong stance on protecting the financial interests of both salaried and non-salaried individuals. By opposing increases in various taxes and proposing more equitable fiscal policies, the Senate aims to foster economic stability and growth. As the National Assembly considers these recommendations, the outcome will significantly influence Pakistan’s fiscal policy and economic trajectory for the coming years.
The proactive stance taken by the Senate emphasizes the significance of equitable and balanced tax laws that do not impede economic expansion. The Senate seeks to foster an atmosphere that is favorable to long-term economic growth by emphasizing the protection of individual privacy, encouraging investment, and guaranteeing transparency in taxes administration. Pakistan’s resilient and prosperous economic future would be greatly influenced by the joint efforts of the Senate and the administration in tackling these important concerns.
