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Govt likely to impose income tax on real estate

ISLAMABAD: Advisor to Prime Minister Shaukat Tarin on Tuesday indicated the imposition of income tax on real estate in the next budget in a bid to increase the tax to GDP ratio.

“Although it is a provincial subject, the government would chalk out a modus operandi to levy tax on this very important sector.”

However, he ruled out the inclusion of agriculture sector in the tax net for at least two years, advocating that the sector needs to stabilise first and then the government would not hesitate to levy tax on the sector. He said that in the past farmers were not given the right prices for their produce. “We would first increase the farmers’ income, and then levy income tax.”

After a meeting of the Standing Committee of National Assembly on Finance, which was given briefing over the Budget Making Process for 2009-10, Tarin while talking to media said that capital gain tax on stock exchange businesses would not be levied in the next budget for 2009-10, as bourses were given a two-year exemption from any sort of taxation by the government before making the budget for 2008-09.

He unveiled that Pakistan would also seek financial help from Friends of Pakistan to strengthen security forces such as Frontier Constabulary to effectively fight out militants, so that Pakistan’s territory can be purged from the menace of terrorism. On the issue of no progress on new NFC, Tarin said he would soon place a request with the prime minister, seeking power to chair the NFC meeting so that thorny issues pertaining to the future mechanism of sharing the divisible pool between provinces could be chalked out.

Earlier during the proceedings of the Standing Committee headed by Fauzia Wahab, Tarin lambasted the previous governments for not enhancing the tax to GDP ratio to a reasonable level for the last 60 years. He said: “Tax to GDP ratio right now stands at 9.6 per cent which needs to increase to 15 to 17 per cent if we want GDP growth at 8 to 9 per cent.” He stressed that at 9.6 per cent tax to GDP ration it is not possible for a country like Pakistan to grow at 8 per cent.

Tarin was visibly at pain disclosing the fact that FBR collects 60 to 64 per cent tax revenue from the manufacturing sector while it gathers 40 per cent on imports, meaning that there is huge room to expand the tax net.

“There was a time when the manufacturing sector was growing at 13.5 per cent, which has now dropped to negative zone. Now it is sheer injustice to add more taxes on this sector. The time has come to impose taxes on sectors like agriculture, services, real estate and stock markets to broaden the tax base.”

He said that under budget estimates the government would, other than IMF tranches, get inflows of $4.4 billion under which World Bank will extend $1.4 billion (for projects), ADB $1.7 billion (both for projects and Balance of Payments), IDB $500 million and DFID $235 million. “There are also indications that World Bank would increase its loan.” “ADB is said to have indicated to double its loan to Pakistan, which may increase to $3 billion,” Tarin mentioned.

During the meeting, Advisor to Prime Minister on Social Sector Shehnaz Wazir Ali took on the finance ministry saying that expenditure on education has alarmingly dropped to 1.2 per cent and on health to 0.57 per cent of GDP.

Tarin responded that he needed cooperation of the political leadership in enhancing the tax to GDP ratio so that the government has ample revenue, which can be used in education, health and improving infrastructure.

He mentioned that 2.2 million out of 160 million people posses NTN (national tax number), but out of them only 560,000 people file returns, which also includes 16000 companies. “This state of taxation is much too alarming.”

He also sought cooperation from the government to help him bring agriculture, real estate and stock exchange sectors under the tax net so that the country can be put on a track to development in the real sense.

He also objected to distortions in the taxation system and stressed to make it more simplified. Painting the future outlook of taxation, he advocated levying two taxes only, one being income tax and the other consumption tax.

Tarin disclosed that the government is going to revamp CDNS (Central Directorate of national Savings) as its present state is simply unacceptable. Right now CDNS is working with no automation, no services and no new products.

To make it successful, CDNS has to come up with a positive rate of return on its various schemes. He said that when inflation comes down, discount rates would also tumble and in this scenario CDNS would be able to come up with positive rate of returns to its clients.

Mentioning the appalling condition of the Planning Commission in terms of capacity issues, Tarin vowed to revamp the Planning Commission.

To a question, Tarin said that he and Planning Commission deputy chairman would monitor top 25 projects every month to ensure smooth running of the said projects.

He said construction of the projects, which have got 40 to 50 per cent allocation, would continue.

Source: The News

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