Budget Speech 2012-13
Let me now turn to the Part-II of my speech which relates to tax proposals
As a country, we have not been successful in mobilizing revenues. Success on
this front has eluded all governments. Consequently, our tax system is
characterized by following features:
The overall Tax-GDP Ratio is less than 10% (FBR at 8.6%, overall at 9.6% in
Only about three million people pay income taxes
About 50% of registered corporate taxpayers and withholding agents file tax
returns Only around 100,000 persons are registered under sales tax
Under-invoicing and undervaluation have become a norm in our business practices
Collusion between the taxpayers and tax collectors persists despite reforms We
are acutely aware of the centrality of revenue mobilization in country’s
economic development and sovereignty. For this reasons, we have thus taken
difficult decisions to broaden the tax net, to bring in sectors that were
enjoying exemption, to identify new taxpayers and to make sure that the rich
abide by law and contribute towards achieving this very important national goal.
As I mentioned earlier, our government has collected an unprecedented amount of
taxes during its tenure and particularly during the last two years. This success
is the result of the resolve of the government and the co-operation of the
business community. The good news is that the overall Tax-GDP Ratio is expected
to improve from 9.6% in 2010-11 to 10.3% in the current fiscal year. A lot more
needs to be done to build upon this good result.
While we have tried to meet the national goal of raising revenues, we have also
ensured that this is achieved without extra burden on the existing honest
taxpayers. We do not want those who are paying to be burdened further. We want
to lessen the load on the honest tax partners. In fact, our approach is to
reduce taxes and rates so the people and businesses are not faced with too many
taxes, or high rates. We only want to go after those who are powerful, well
connected, and well organized and simply do not pay taxes at all.
Let me share the good news with all honest taxpayers --- salaried employees,
individual businesspersons, corporations, --- there is no extra burden on you.
There is only relief for you. You have done your duty to be an honest taxpayer.
We will now do our duty to give you relief.
The government has ensured that the interests of the salaried class and public
servants are protected. Every year, we have increased salaries, allowances,
pensions and other benefits of government employees. We have also given tax cuts
to the salaried persons and tax payers in the lower brackets.
Let me draw your attention to our provisions for Income Tax.
In 2009-10, we increased the basic income tax exemption limit from Rs.100,000 to
Rs.300,000, benefitting 1.2 million taxpayers in the lower brackets.Last year,
we raised this exemption to Rs. 350,000. In continuation of this fiscal support
to the salaried class, the basic exemption limit for Income Tax is being further
enhanced to Rs.400,000 this year. Similarly, the exemption limit for business
individuals and Association of Persons (AOPs) is also being enhanced to
Rs.400,000. This will benefit many taxpayers.
We have also decided to reduce the tax slabs to 5 only. Importantly, a major
relief will be that only the portion of income exceeding a tax bracket would be
charged at the higher tax rate. A taxpayer with an income of Rs. 35,000 per
month previously paying Rs. 10,500 would only pay Rs. 1000 as tax. Apart from
fundamentally simplifying the income tax system, this measure will provide
relief of Rs. 8 Billion and benefit all existing income tax payers by reducing
the effective income tax rate.
Under the present scheme of taxation, if an employee obtains a loan from the
employer at a concessional rate, it is taxed at 13%. In order to facilitate such
employees, it is proposed that such loans up to Rs.500, 000/- shall be exempt
from income tax. Loans above this limit shall be taxed at the maximum rate of
As a relief measure to pensioners, amount received from approved income payment
plans or annuity plans invested from any balance of voluntary pension schemes
upon retirement will be exempt from tax if invested for a period of ten years.
The tax collection has improved due to the cooperation of law abiding
businesses and individuals. The government appreciates them. To recognize them,
a taxpayers’ Honour Card is being introduced. It will entitle its holders to
concessions and facilities at various public and private forums such as NADRA,
Passport offices, Airports, Customs, Immigration, FBR and other public offices.
FBR will also honour them by displaying their names on its official Web Site.
We want to give incentives in income tax to promote business activity and
lessen the burden on our business. I turn to some of the important measures.
These represent the acceptance of demands from the Chambers of Commerce and
Under the existing income tax structure, the businesses are being taxed at the
minimum rate of 1% of their turn over, even if they are reporting losses. To
mitigate the hardship faced by registered businesses the rate of minimum tax on
turn-over in this budget is being reduced from 1% to 0.5%. We should consider
moving away from this method of collection entirely in the near future.
The government wants to phase out the presumptive tax regime (PTR) in three
years. We are thus reducing the rates of tax from 5% to 3% or commercial
importers, from 1% to 0.5% for exporters and from 3.5% to 2.5% for suppliers to
give them the incentive to opt out of the PTR.
Withholding tax on profits paid on intra-group debt is being abolished.
Currently there is a withholding tax on cash withdrawals if they exceed Rs.
25000 per day. This limit is being enhanced to Rs. 50,000 per day. To
rationalize the rates of depreciation, the value of vehicles is being enhanced
to Rs.2.5 million, while the initial rates for new buildings are being reduced
Capital Markets are important for economic development of a country. To develop
them and give confidence to the investors, the changes made through the Finance
(Amendment) Ordinance, 2012 may be incorporated into the Statute through the
To encourage the Capital Markets, exemption on the profit and gains of a Venture
Capital Company and Fund is being extended upto the year 2024.
To promote investment in securities and insurance, the limit of investment as a
proportion of taxable income is being increased from 15% to 20% and from Rs.
500,000 to Rs. 1 million, which ever is lower. The required retention period of
shares is being reduced from 3 years to 2 years.
To encourage a competitive market for Retirement Schemes, transfer of funds
between retirement funds will be exempt from tax. Further, retirement funds
shall be exempt from withholding tax provisions on Capital Gains Tax.
Dividends received by banks from money markets and income funds will be taxed
progressively over a period of two years as normal business income. Dividends
will be taxed at 25% in tax year 2013 and at 35% from tax year 2014 onwards to
eliminate tax arbitrage.
To bring certain undocumented sectors into the tax net, manufacturers are being
made withholding agents to collect 1% adjustable tax on sales made to
distributors and dealers.
This government has reformed the general sales tax system last year, by
eliminating zero rating; reduction of the multiplicity of rates; and expanding
coverage to all sectors except food, health, and education. This process of
reform must continue, to realize the full potential of this task.
To avoid multiplicity or rates and decrease the burden on the consumers, all GST
rates above 16% are being brought down to 16%.
To discourage fraudulent refunds and streamline local supply chains in plastic,
sprinkler, drip and spray equipment, mono filament yarn and net cloth, and
remeltable scrap, it is proposed to eliminate zero-rating of these items. These
items shall, however, be exempted from sales tax.
Local waste paper is one of the major inputs used in the manufacturing of paper.
The waste paper is collected and supplied by the unorganized sector, leading to
a high rate of abuse through a market for flying invoices. To curb this
practice, it is proposed to exempt local supply of waste paper from sales taxes.
Cotton-seed is zero-rated while Cotton-seed-oil is exempt from sales tax. The
mills producing Cotton-seed-oil are, therefore, not required to issue any sales
tax invoice and their production remains undocumented. The Oil and Ghee
manufacturing units using undocumented purchases may suppress their production
to evade sales tax.
It is proposed to zero-rate Cotton-seed-oil to keep it in the documented sector
and provide level playing field to the tax compliant Oil and Ghee manufacturing
The current sales tax of the steel sector, fixed in 2008, is at the rate of Rs.
6 per unit of electricity consumed. To harmonize it with the current market
prices, this rate is being enhanced to Rs. 8 per unit of electricity consumed.
Smuggling of goods causes injury to the local industry, and discourages legal
imports. High rates of duties and taxes on these goods provide incentive for
It is being proposed that sales tax on black tea be reduced from 16% to 5% to
encourage legal import of tea.
Let me turn to Federal Excise Duty.
To bring prices down and give incentives to the private sector, the Government
intends to phase out Federal Excise Duty (FED) in the next two years. To ensure
this, FED was abolished on 15 items, last year, and the rates were brought down
on many more. The Government intends to further eliminate FED on the additional
10 items including base lube oil, lubricating oils, filter rods, and skin care
The Dairy Industry has great potential in Pakistan. Pakistan is the fifth
largest producer of milk in the world. But a very large quantity of local milk
is never processed. To promote investment in dairy development, it is proposed
to abolish Federal Excise Duty leviable on livestock insurance.
To develop capital markets, FED on services rendered by Asset Management
Companies is also being abolished.
To boost the construction activity and generate jobs, last year, the FED on
cement was reduced from Rs. 750/ PMT to Rs. 500/ PMT. This year, it is being
further reduced from Rs. 500/ PMT to Rs. 400/ PMT.
FED is leviable on foreign travel to or from Pakistan. However, collecting FED
on foreign travel into Pakistan is practically difficult and not in conformity
with international best practice. Therefore, it is proposed that FED may be
collected on embarkation of passengers from Pakistan.
I now turn to Custom Duty.
The government wants to reduce the tariffs, simplify procedures and create a
conducive environment for boosting the economic activities. In order to reduce
the prices and to provide relief to general public, the highest tariff rate is
being reduced from 35% to 30%.
Education is the main priority of the government. Therefore, to make text books,
exercise books, pencils, pens and inks available at cheaper prices, customs duty
on 18 raw materials and 9 components for manufacturing of stationery items are
New tariff headings are being created in the Pakistan Customs Tariff, to align
our tariff structure with export partner countries (e.g. USA, EU). This measure
shall eliminate operational problems of exporters, particularly textiles.
The Government is fully aware of the hardships being faced by the people of
Pakistan because of energy shortages. To mitigate people’s suffering, it is
being contemplated to provide fiscal relief on the import and installation of
alternate energy sources, UPS and generators.
Promotion of the Construction Industry generates economic activities in
thirtyeight downstream industries. To promote the use of scrap of rubber and
shredded tyres as a substitute fuel by manufacturing plants, such as cement,
duty on scrap of rubber and shredded tyres is being reduced from 20% to 10%.
To ensure availability of medicines at affordable prices, customs duty on 88
pharmaceutical raw materials is being reduced from 10% to 5%.
To promote energy-efficient Hybrid Electric Vehicles (HEVs), the rate of duty
and taxes presently applicable to HEVs and their batteries is being reduced by
In order to encourage legal import of self-copy and self-adhesive papers, their
high rate of customs duty is being reduced to 10%
To align Pakistan Customs Tariff with international conventions, it is being
updated in conformity with the latest WCO nomenclature.
New departments are being created in Customs to deal exclusively with Transit
trade issues, including the prevention of smuggling.
To separate the judicial functions from the executive in Customs, offices for
adjudication are being created in the Customs department to address this demand.
The government provides incentives to the local industry through reduced rates
of import duties through SROs. These complicated procedures are being simplified
and the anomalies are being rectified. These measures will reduce the cost of
We have given a budget that will build hope and lay the foundation of a better
tomorrow in which not only economic stability will be maintained but growth will
be accelerated. Our young population is our assurance for a strong and
prosperous Pakistan, provided we can create job opportunities for the use of
Growth is the answer and this will be our main focus during the year.
There is no limit to the economic potential of Pakistan. The challenge is to
create the enabling environment in which this can be realized. May Allah bless
this country and our people. Ameen!