Govt eases curbs on big-ticket purchases

Express Tribune

6 days ago

Finance Minister Muhammad Aurangzeb on Monday formally unveiled a Rs36 billion mini budget in the National Assembly and announced to exclude almost the entire population from disclosing source of income before buying a big home, a car or running a bank account.
The limits set for disclosing the source of income before making big purchases would now target only the users of above 1,600 cc cars, and people owning more than one-kanal residential houses in major cities and almost two-kanal houses in other cities.
Effectively, this has rendered the enforcement initiative of the Federal Board of Revenue (FBR) chairman ineffective, which has also lowered the success rate to catch the tax evaders to just 3.7%.
The FBR does not have the capacity to go after the people once they have made these purchases, thus, the government had planned to pre-empt the purchases.
Aurangzeb made these announcements while winding up the budget debate in the National Assembly. With the winding up speech, the formal process for approval of the next fiscal year's budget and tax measures has begun that will end with the approval of the Finance Act likely on Thursday.
The finance minister presented three more budget proposals before the National Assembly, which also target one-day old chicks, to generate a total Rs36 billion in additional taxes in the fiscal year 2025-26.
He proposed increase in the tax rate on the income derived from the debt portion of mutual funds issued to companies from 25% to 29%. The minister said that the companies' other incomes were already taxed at the 29% rate.
Aurangzeb said that the income tax rate on profits made by corporations and companies on investments in government debt is also increased from 15% to 20%. The government has also proposed tax on the poultry sector, where billions of rupees investments are made, said Aurangzeb.
"It is proposed that a Federal Excise Duty (FED) of Rs10 per day-old chick should be imposed on hatchery chicks, so that this sector can also contribute to the national exchequer," he said. The government has estimated that about 1.5 billion chicks are produced every year and it will collect Rs15 billion by taxing a product that is a common diet of the poor and the rich.
The minister said that these three additional measures will not impact the industry and the burden has been passed on to the wealthy people and institutions.
The government proposed the Rs36 billion measures in lieu of reduction in proposed sales tax rate on import of solar panels from 18% to 10% and funding an increase in salaries of the government employees to 10%.
Aurangzeb claimed that the government has presented a balanced budget for the fiscal year 2025-26. On the one hand, we have kept government expenditure under control, while on the other, much emphasis has been laid towards increasing the tax base and its compliance, said the finance minister.
Exclusion
Earlier, the government proposed that all those citizens should be barred from buying major assets, if their declared wealth does not support such purchases. But the finance minister announced the measure to drastically tame these powers.
"On the instructions of the prime minister, this new law will not apply to the purchase of residential plots or houses worth up to Rs50 million, commercial plots or properties worth up to Rs100 million and vehicles worth up to Rs7 million," he said.
These limits are "too generous" and compromise the objective of linking the purchases with white money, a senior FBR official told The Express Tribune.
Early this year, the FBR chairman had informed the National Assembly Standing Committee on Finance that due to almost no capacity of the FBR to audit the tax statements, the rate of success in inquiring the people about the source after making these purchases was only 3.7%.
The government has also agreed to relax the criteria for banning the economic transactions such as buying a home, plot, car, investing in securities and maintaining a bank account by those, whose declared assets do not support these purchases. It had proposed to ban all such transactions if the declared assets do not support these purchases.
The ineligibility condition will be applicable only if the cash in the bank account is more than Rs100 million per annum in all bank accounts of one individual. The ineligibility condition on stock market investment would be applicable, if the cumulative investment in a year is more than Rs50 million.
One of the genuine concerns was that the FBR may end up exploiting the people in the absence of a credible online platform to determine the eligibility of the people to make these purchases. Because of this reason, the National Assembly Standing Committee on Finance had linked the implementation of these harsh conditions with the effectiveness of the online platform.
The finance minister also announced to exempt a residential property owner from payment of up to 6.5% withholding tax at the time of sale, if the property is sold after retaining it for at least 15 years.
He said that the government would not tax post-retirement benefits in the shape of commutation and gratuity. But the annual pension of over Rs10 million will be taxed at the rate of 5%. On the instructions of the prime minister, pensioners over the age of 75 are exempt from all types of taxes, he added.
The government, in its bid to promote affordable housing, would launch a 20-year loan scheme for the low-income segment, informed Aurangzeb. He stated that individuals earning between Rs600,000 and Rs1.2 million annually will now be taxed at just 1% -- from 2.5% proposed in the budget.
He added that the proposed 18% GST on solar panel imports has been lowered to 10% but said that it would increase the prices by only 4.6%.
Aurangzeb informed the lower house that on the special instructions of the prime minister, the existing powers of the FBR regarding tax fraud and the amendments made through the Finance Bill were reviewed again, under which tax fraud has been categorised into cognisable and non-cognisable offences.
"In cases involving up to Rs50 million, the FBR will not be able to arrest without a court warrant," he said. In addition, the person can be arrested only if he does not become a part of the inquiry despite three notices; the accused tries to escape; or tampers with the record.
He said that the approval for arrest will be given by a high-level three-member committee of the FBR, instead of an officer, and it will be necessary to present the arrested persons before the court of a special judge within 24 hours," he said.