The Social Policy and Development Centre, suggesting few new taxes and increase of rate in some taxes, have proposed that upcoming federal budget of FY2008-09 should be designed not only to mobilize more revenues for the public exchequer but also to generate them in a way that the burden of taxes is not shifted on the lower income groups.
In income taxation, given the high level of inflation during the fiscal year 2007-08, a strong case exists for lowering the tax burden on lower income groups. SPDC observed that income tax exemption limit should be enhanced from Rs 150,000 to Rs200,000 for salaried and from Rs 100,000 to Rs 150,000 for non-salaried tax payers.
Simultaneously, incidence of the tax has to be enhanced to make the structure more progressive for high incomes above Rs 100,000 per month. Currently, more than half of income tax revenues are collected under the withholding/ presumptive tax regime, which strictly speaking, acquires an indirect tax character.
It was proposed that effort needs to be made to gradually withdraw the presumptive taxes and replace them by income tax collection based on self assessment and tax audit.
SPDC further suggested that taxation of real estate which has historically been a "tax haven" for speculators who have diverted capital from productive activities. There is a strong case for the introduction of capital Gains Tax on real estate by the provincial governments, which could yield Rs 10 billion. Advocating the real tax, SPDC said that real state was become profitable sector in Pakistan as the prices of land has increased during very less period in the country.
One other progressive proposal which can have favorable impact on the twin deficit was imposition of regulatory duty on non essential imports; SPDC said and suggested that imposition of a regulatory duty of 10 percent on luxury good imports would not only mobilize extra revenues of upto Rs 30 billion, to partially finance the relief package for the poor while imposition of this tax will also bring down the growing level of luxury imports in the country.
Other tax proposals which also focus on 'taxing the under taxed' are summarized as board-based sales tax on services. Many services cater primarily to the demand of upper income groups and to corporate entities. Their revenue contribution is very limited. Introduction of a broad-based sales tax could follow the lines of development of the service tax in India. The number of taxed services is 80 and the number of tax assessees has approached one million in India. The yield has crossed one percent of the GDP, with a tax rate of 12 percent. It is estimated that introduction of such taxes in Pakistan would lead to additional revenue of Rs 25 billion initially.
It also suggested that higher tax on private companies should be imposed. Rate of corporate tax on private companies may be enhanced which could result in additional revenue of Rs 10 billion. SPDC also proposed that the rate of property tax could be raised in next budget. Presently the property tax is levied by provincial governments. Currently the assessed-to-market rental values are very low and could be enhanced significantly. Government could yield additional revenues of between Rs 70 to 85 billion from raising rate of property tax.
At presently the Defense Housing Authorities in Lahore and Karachi were exempted from property taxes while the rate of property/house especially in posh areas has increased significantly, SPDC maintained.