The budget for financial year 2021-22 will put more pressure on the already burdened masses as the federal government is considering recommendation to abolish tax exemptions for various sectors, sources said on Thursday.

According to sources, it is suggested to the government to abolish income tax exemptions of more than Rs20 billion. It includes a proposal to abolish income tax exemption on medical allowance to salaried class, they added.

There are also recommendations to abolish tax exemption on profits of corporate agricultural income and income tax exemption on business in the erstwhile Tribal Areas.

Previously, businesses in the Tribal Areas were given a tax exemption of Rs4 billion per annum, sources said.

The poor will be burdened as it is also recommended to abolish income tax exemption for social security institutions, the sources maintained.

Moreover, the LNG (liquefied natural gas) will become dearer as the government is suggested to do away with income tax exemption given to LNG terminals and operators.

It may be recalled that in March, the Federal Board of Revenue had submitted a bill to the National Assembly secretariat proposing a string of amendments to withdraw around 36 tax exemptions and streamline other corporate tax exemptions, which were to come into effect from July 1, 2021.

WITHHOLDING TAX: A day earlier, the federal government was planning to ease the masses as it was considering to scrap two dozen withholding taxes and different proposals were under discussion.

At present, there are 40 withholding taxes.

One of the main suggestions is to abolish withholding tax and Federal Excise Duty (FED) on credit cards for a period of three to five years.

This step, if taken, will facilitate the revival of the digital economy in the country.

In the upcoming budget, the withholding tax on cash withdrawal from banks, contracts, supplies and salaries will also be abolished.

Another proposal which is being considered is to reduce the salary tax rates. Furthermore, FBR is considering proposals to introduce various offers to taxpayers to settle cases. 

This will be done by paying 20 percent to 50 percent of total amount involved at different stages of appeals.

The FBR has realised that it is collecting a negligible amount against some withholding taxes. It has found that around 7 to 10 withholding taxes contributed to almost 85 per cent of the collections under this head out of the total number of taxes standing at over 40.

“The government has decided to keep major revenue spinners of withholding taxes intact in the coming budget. All those WHT will also continue that are used as a tool for documentation of economy,” an official said.

As per its analysis, the FBR collects a major chunk of its withholding taxes from imports, salaries, dividend income, payment to non-resident, payment for goods, services and contracts, exports, electricity consumers, income from property, cash withdrawal from banks and purchase/transfer of immovable property and others. On imports, the FBR has collected Rs400 billion so far.

In a bid to bring distributors into tax net, the withholding tax rate of distributors might be reduced to 0.25 percent. The government is also mulling to give exemption on withholding tax and GST on waste management.

The WHT tax rate of distributors might be reduced to 0.25pc, so it is basically aimed at bringing distributors into the tax net. Another proposal being mulled by the tax machinery is to exempt the withholding tax and GST on waste management for five years.

Regarding Special Economic Zones (SEZ), the government is thinking of granting tax incentives for five years. The minimum tax rate of 1.5pc might be slashed to 0.5pc in the budget.


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