Headscratching over taxes

Final proposals are readied for decision

That stage of a marathon process has been reached where taxation proposals in the shape of options are put up to the Prime Minister for final decision. Before this, the Central Board of Revenue received instructions from the Prime Minister and Finance Minister on what options the government favoured. Then a variety of options were prepared, and the change in revenue calculated. A  sort of menu has been prepared, and the PM now has to pick items keeping in view the political exigencies he faces. Naturally enough, the PM having expressed a desire to give relief to salaried persons on the income tax, the proposals include a number of options involving the income tax. Besides, the PM also had to accommodate the demands of the business community to reduce the burden of taxation. There too the options have been mostly related to income tax, not the customs duty or sales tax. Once the PM finalizes the projections, the Finance Ministry would then take up the final list with the IMF, which has a veto on all taxation proposals, especially if they involve giving relief, or in other words reducing revenue.

The proposals now offer options for  reducing the tax paid by individuals making Rs 200,000 or more a month, abolishing the 15 percent income tax on companies for dividend income, and also the reduction of some of the tax burden on mobile phones. The increase of the petroleum development levy at the last fix, when the relief passed on due to the reduction of global oil prices was only Rs 4 a litre, prevented a cut of Rs 26.60. This reflects the growing importance of the PDL for federal finances, It has been targeted at Rs 1.73 trillion for the coming fiscal year. Also, PDL revenue is exclusively federal, not being part of the Federal Divisible Pool, of which provinces get 57.5 percent.

The PM’s emphasis on relief for the salaried class must also be seen in the light of the proposal to introduce a fixed tax regime for small traders. If the collection from that cannot be translated at least initially into relief for salaried individuals, then there is something terribly wrong with the entire tax regime, the IMF interference included. The whole narrative so far has been that the taxation administration squeezes the salaried, who are easy pickings, while conniving at evasion by traders. That must stop.