Pakistan to Reduce Import Tariffs for Industrial Sectors

Federal Board of Revenue (FBR) said on June 6, 2011 that government would start reduction in import tariffs for different industrial sectors with the approval from Economic Coordination Committee (ECC) of the Cabinet under the Planning Commission's tariff rationalisation plan.

Salman Siddique, Chairman FBR said provinces especially Sindh will impose in its budget GST on those services which do not involve any input tax adjustment.

Other three provinces have already empowered FBR to collect GST on services and it is the intention to wait for the outcome of the forthcoming provincial budgets for 2011-12.

"FBR will collect GST on services on behalf of the provinces where input tax adjustment is involved," he explained.

At the post budget briefing he said first tariffs rationalisation would be approved by the ECC in its meeting to be held soon.

Even after the announcement of federal budget tax and tariff reforms will continue and government has not shelved the import tariff restructuring plan prepared by Planning Commission in consultation with Ministry of Commerce and FBR. "In the next ECC of the Cabinet meeting rationalisation of import tariff for certain sectors will be submitted for approval," he added.

He said under the rationalisation of import tariff plan, tariffs will be brought down and there would be no increase in import tariffs. It's the joint work of nation building and reduction in tariffs for different industrial sectors and would help increase the economic activity and resultantly jobs in the private sector and revenues will increase.

While terming tax collection target as realistic and dispelling the impression of ambitious target, FBR chairman said there was a huge tax potential in the country as tax gap in Pakistan is 40 percent to 50 percent against 20 percent in United States and 8 percent in United Kingdom.

It is the will and efforts of the government and FBR that would help bridge the tax gap by bringing all sectors in tax net and all rich in tax net. If FBR is able to collect Rs 50 billion through its administrative measures it would be 2 percent or 2.5 percent of the tax gap estimated in the country.

He said if FBR was able to collect Rs 1.588 trillion by June 2011, then the tax-to-GDP ratio would be 9.1 percent of the GDP and incase FBR was able to manage Rs 1.952 trillion by June 30, 2012 that the tax-to-GDP would reach at 9.5 percent of the GDP and would not reach the double-digit level. He said IMF authorities simply questioned us that a nation that has built nuclear programme through its own professionals then why Pakistani tax managers could not improve its tax system.

He categorically said this was the time of make or break and country could not afford any more revenue leakages. He said if FBR succeeded in collecting Rs 1.588 trillion by June 30, 2011 it would be a success for FBR machinery and "if it fails, FBR would take responsibility on its shoulders." He made it clear he was retiring on January 21, 2012 and would not like to stay further by showing artificial performance in FBR. The tax proposals prepared by the Revenue Advisory Council—which have not been included in the budget—would not go waste and Revenue Advisory Council would continue its work for guiding FBR on tax reforms and first meeting of RAC would be held in July 2011. He said GST rates of 4 percent and 6 percent for the five zero-rated sectors textiles, leather, carpets, surgical instruments and sports goods have been revised to single rate of 5 percent and new rate would be notified before July 1, 2011.

He said actual results of the Capital Gains Tax on stock market would be visible in September when income tax returns are filed for income earned during 2010-11. Similarly, corporate sector would file its return by December.

"Without analysing final results of the CGT on stock market, a sudden policy shift in the shape of allowing two years exemption on CGT is not possible for the government," he explained. Negating the impression of collecting additional advance tax for meeting tax collection target of Rs 1.588 trillion, the chairman categorically said that FBR would not collect a single penny that is not due by end of the fiscal year 2010-11.