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Punjab budget today: Govt plans to broaden sales tax base

LAHORE, June 9: The Punjab government proposes to adjust property and motor vehicles taxes and broaden the scope of provincial sales tax on services in the budget for the fiscal 2011/12 being announced on Friday (today).

Officials told Dawn on Thursday that the additional taxation measures to be introduced through finance bill are expected to yield revenue more than Rs20 billion.

The tax adjustments are being done in the light of the recommendations of a committee by Chief Minister Shahbaz Sharif to increase provincial own tax collection to make up for the revenue loss resulting from his decision to spurn American aid in the wake of the May 2 Osama bin Laden operation and the continuing drone attacks. The US government had pledged to provide $200 million to Punjab in three years for improving the municipal facilities and launching education projects in its under-developed southern region.

The scope of the provincial sales tax is expected to be widened to marriage halls, beauticians, private clinics, hospitals and medical colleges, private schools charging more than Rs6,000 a month as tuition fee from students, law firms, property developers, private security agencies, swimming pools, etc. In addition to extending the scope of provincial sales tax to the untaxed services, the government proposes to increase tax on property in the expensive, richer localities in the cities of the province. It includes withdrawal of tax exemption from five-marla houses in the posh localities.

Additionally, the officials said, the government may increase the rates of various provincial levies like motor vehicle tax, cotton fee, etc because these remained unchanged since 2002.

The officials said the additional taxation measures would help the provincial government raise its own tax revenue target for the next financial year to Rs130-140 billion (inclusive of the sales tax on services collected by the federal government on behalf of the federating units) from the original budgetary target of Rs91 billion for the outgoing fiscal.

The total size of the budget is expected to be around Rs680 billion, including annual development programme (ADP) of around Rs220 billion, up from the current year’s original target of Rs190.5 billion. The development programme will include core development spending of Rs178 billion. The rest of the development funds will be spent on mega projects.

A sum of Rs528 billion will be transferred by the federal government to Punjab next year under the National Finance Commission (NFC) award. However, the provincial authorities are skeptical of the federal tax target and anticipate substantial reduction in the federal transfers to the provinces. “We are setting our next year’s targets in accordance with the projected transfers. But we will keep adjusting our targets with the passage of time in line with the reduction in federal transfers,” a senior finance department official said.

The provincial government had to drastically cut its development spending to Rs128 billion for the outgoing year because of diversion of substantial financial resources to over 0.8 million families affected by the devastating floods last summer and reduction in provincial share in the federal taxes because of the below-the-target collection of tax revenue by the FBR, according to the officials of the planning and development department.

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