Taxatio reforms in Khyber Pakhtunkhwa

Taxation reforms in KP
By Tahir Ali
The Khyber Pakhtunkhwa government several has suggested several amendments to the relevant laws and revised the ratio of taxes in the 2014-15 budget.
It wishes to amend the first schedule of the sales tax act which will enable it to bring some more sectors in the tax net.
Rather than going for robust industrial revival and economic growth to increase its revenue, KP has opted for raising the ratio of tobacco development cess, land tax, agriculture income tax, professional tax and other taxes, levies, fees, duties and royalties such as the stamp duty, parking fees, route permits and royalties on forests for the purpose.
KP will generate provincial own receipts (PORs) of Rs28.78bn against current year’s Rs20bn. The PORs consist of tax receipts of Rs19.45bn (67.6%) and non-tax receipts of Rs.9.327bn (32.4%). Tax receipts include 11.8% direct taxes and 88.2% indirect taxes.

However the PORs will only be seven per cent of the total revenue receipts of the province as usual. PORs are projected to increase to Rs32.5bn and Rs36.6 in the next two years.

PORs include direct taxes like taxes on agriculture, property, land revenue etc, indirect taxes like GST on services, provincial excise, motor vehicle tax, stamp duties etc, and non tax receipts like income from property and enterprises, civil administration and economic, community and social services.

To improve tax collection, tax facilitation centres to be set up in Peshawar and other big cities. And Patwaris, who play pivotal role, have been given 50 per cent pay raise and Rs500 stationary allowance to discourage corruption and improve agriculture/land tax collection.

Agriculture tax
KP has been collecting direct taxes -Land Revenue (water tax or Abiana), agriculture income tax (AIT) and Land tax (LT) –and non tax heads (user charges) from farming community.

AIT/LT is collected by the Revenue and Estates department while LR is collected by the irrigation department through the patwaris from the farmers.

The AIT is collected on different rates from the owner, mortgagee or lessee or the tenants and levied on income from cultivated land while LT at a fixed rate over and above the exempted 12/5 acres of land under crops and orchards. Their rates have however been revised.

Target for AIT/LT and LR has been fixed at Rs79mn and Rs1.4bn against Rs22mn and Rs1.1bn budget estimates of the current year.

The exemption from AIT has been raised from Rs0.1mn to Rs0.4mn. 5 percent AIT would be collected from every owner of agriculture land if his income is over Rs0.4mn but doesn’t exceed Rs0.55mn. Where income exceeds Rs0.55mn but not Rs0.75mn, land owners will pay Rs7,500 plus 10 percent on the amount over Rs0.55mn. And when the income goes above Rs0.75mn but not Rs0.95mn, the owner will pay Rs22,500 plus 10 percent tax on the amount exceeding Rs0.75mn.On agriculture income between Rs0.95mn and Rs1.1mn, Rs42,500 plus 15 percent tax on the exceeding amount. And a land owner will pay Rs65000 tax plus 17.5 percent if his income exceeds Rs1.1mn.

Similarly, the rate for LT has been increased from Rs72 per acre over and above the exempted 12/5 acres of land under crops to Rs225-340 and to Rs900 from Rs300/acre for orchards.

Urban immoveable property (UIP) tax

The government has also revised and extended the scope of property tax. A proper survey will be conducted to properly determine property tax.
Earlier, 2 per cent capital value tax had been imposed on the transaction of UIP (residential flats and multi-storey buildings) but the 2 per cent tax had not to be less than Rs10 per square feet of constructed area. The condition has been waived and it will now be levied according to the classifications of constructed area.
Similarly, the ‘low’ ratio of UIP tax on houses of 15-20 marlas will be increased for houses on 18 marla or above.
Immovable properties have been divided into 12 categories. An owner of upto 5 marlas house (other than self-occupied) in category A, B and C (townships) in Peshawar will pay Rs1000, Rs 900 and Rs750 in UIP respectively. Owners of over 5 marlas will pay UIP tax of Rs1700, Rs1600 and Rs1500, owners of 10 marlas will pay Rs2200, Rs2100 and Rs2000, owners of 15 marlas house will deposit Rs3300, Rs3200, and Rs3000 while those with 18-20 marlas houses and flats will pay UIP tax of Rs10000, Rs9000, Rs8000 the three categories respectively.
Any land or building used for mobile towers or antennas which pays UIP tax at flat rate of 20 per cent of their annual rent will give Rs40000 annual tax in provincial, Rs30,000 in divisional and Rs20000 in district headquarters.
Critics opine that for the first time in the history of Pakistan, UIP tax will be extended to the suburbs at the district level in the KP budget (however this decision has been withdrawn in the finance act, 2014-15 passed by the provincial assembly)
The employees of grade 1-5 have been exempted from the tax. All government employees from scale5-22 will be giving annual tax between Rs100 and Rs2000.
Professional tax
Almost all professionals, business and services, with exclusion of lawyers, like chartered accounts, transporters, money changers, jewellers, cable operators, tobacco whole sellers, and businesses like petrol/diesel/CNG stations, real estate shops/ agencies vehicle service stations, printing presses etc will be in the tax-net now.
The professional tax threshold has been increased from Rs6000/pm to Rs10000 a month but as minimum monthly pay has also been fixed at Rs12000/pm ( as per the finance act, the minimum pay has been increased to Rs15000), practically all are to be taxed.
Those earning Rs10,000-Rs20,000/month will pay professional tax of Rs330 while the tax will be Rs435, Rs600, Rs800 and Rs1,000 respectively for those earning Rs20,000-Rs50,000, Rs Rs50,000-Rs100,000, Rs100,000-Rs200,000 and Rs200,000-Rs500,000/month.
The private limited companies, modarbas and mutual funds etc with paid-up capital and income of Rs10mn per annum in the previous year will pay tax of Rs18000 and Rs100000 if their income is over Rs200mn.
Persons owning factories, commercial establishments, private educational institutions and private hospitals will also pay tax. Any commercial establishment having 10 or more employees will pay tax of Rs10000 and private hospitals with 50 employees will pay Rs50000 tax a year.
Private business education institutes with 100 students will pay Rs70000 tax. Private law, medical and engineering colleges running degree programmes will pay Rs100000 tax, while educational institutes taking Rs5000 monthly fee from students have to pay Rs100000 annually.
Holders of import/export licence who earn Rs50000 in previous year will pay Rs4000 tax. A clearing or custom agent will pay Rs10000 and restaurants/guesthouses owners, professional caterers, travel agents and hajj/tour operators will pay Rs15000 tax while wedding halls owners Rs30000 annual tax.
Specialist doctors will pay Rs20000 while dentists Rs15000 professional tax a year. Diagnostic and therapeutic centres and pathological and chemical laboratories will also be taxed.
Experts say by directly collecting income tax from professionals and commercial entities, the KP government is intruding into the domain of the federal government which is exclusively authorised to collect income tax.
It is still not clear whether these taxes on employees and professionals would be in addition to the income tax?
It is merits mentioning that under the Finance Act 2013, KP had finalised arrangements to impose the infrastructure development cess but could not do so following objections from the federal government.
After the 18th amendment, excise duty on oil was to be imposed under Article 161(1)(b) of Pakistan’s constitution but it is yet to be levied. Khyber Pakhtunkhwa could receive Rs14.6bn on this count.
While the government claims it wishes to provide relief to the poor and collect tax only from the rich, these measures may ultimately burden the common men and will be resisted by the businessmen, farmers and the working class impacted by slump in business and price-hike.

 

 

Dawn-KP budget 2014-15

Progressive taxation of farm incomes

By Tahir Ali

Published Jun 23, 2014 06:11am

http://www.dawn.com/news/1114457/progressive-taxation-of-farm-incomes
The Rs404.8bn Khyber Pakhtunkhwa balanced budget for 2014-15, with a Rs139.8bn annual development programme, is aimed at addressing economic, social and industrial woes of the impoverished province, but falls short of business expectations.
“It is a status-quo budget devoid of any change, vision and reform agenda, and neglects the potential sectors. KP is beset with flight of capital, rising unemployment, terrorism and energy shortage. Joblessness is on the rise — there is 14.8pc unemployment in Khyber Pakhtunkhwa.
“Emergency steps are needed for economic growth, industrial revival, infrastructure development, energy supply, revival of sick industrial units and improvement in law and order and technical and IT education. But there is no proper roadmap for these areas.
“The government has failed to give new mineral, industrial, hydro, oil/gas and tourism policies reflective of its agenda for change,” says KP Chamber of Commerce and Industry President Zahidullah Shinwari.
The new budget is bigger by Rs69bn than the current budget of Rs344bn, while the ADP is higher by Rs21bn over this fiscal’s Rs118bn.
Major revenue receipts include Rs227.12bn from federal tax assignments, Rs12bn in net hydro profit, Rs32.27bn as NHP arrears, Rs29.26bn from oil/gas royalty, Rs27.29bn as war on terror grant and Rs35.35bn as foreign assistance etc.
KP’s own revenue receipts are estimated at Rs29bn (up by 70 per cent against the current year) and include Rs19.45bn in tax receipts and non-tax revenue of Rs9.3bn. This includes Rs12bn as GST on services. The province also earns Rs2.85bn from its own power plants.
The budget suggests insufficient measures to check the current expenditure which has reached around 70 per cent of the total budgeted outlay.
The finance minister promised to provide 15,000 more jobs in the public sector, but admitted that joblessness cannot be eliminated by the government alone. Without support of the private sector, and for that matter, economic growth, the problem cannot be solved.
There seems to be a genuine attempt to raise provincial revenues. The PTI-led KP government has proposed a progressive tax on agriculture income, as well as land tax and property tax. The KP revenue authority will conduct a proper survey to determine the property tax.
It intends to raise fees on stamp duty, professionals and professional institutions, business establishments etc. Strangely, a PTI-led government is to tax educational institutions, including medical, engineering and law colleges.
The finance minister says the province is replete with abundant human and natural resources, but its population is living in poverty and backwardness owing to unfair distribution of resources, flawed planning, joblessness, illiteracy, corruption, nepotism, weak accountability system and lack of good governance. He vowed to root out these evils.
Prepared under the ‘Integrated Development Strategy’, the budget aims at good governance, responsive social services delivery, economic prosperity, peace, economic growth and job creation, improved transparency and accountability, enhanced fiscal space and gender equity.
The minister said the private sector would be involved in the construction and maintenance of public sector development projects in partnership with the public sector.
However, important sectors have been allocated higher but yet paltry sums: Rs3.4bn for power sector against Rs1.4bn in the current year; Rs4.7bn against Rs3.28bn for irrigation and Rs1.58bn against Rs1.53bn for agriculture. Agriculture is the backbone of the economy as 70 per cent people in KP are dependent on it for their survival.
A Board of Investment and Trade has been formed to ensure an investment- friendly environment and for economic revival. The KP oil and gas authority has been constituted for better use of existing resources and for exploring new ones. But the impact of the two bodies is still not yet visible.
The finance minister says KP’s industrial sector is hit by lawlessness, energy crisis, limited market, high cost of production, dilapidated infrastructure and inadequate technical knowhow.
For this, technical education is to be promoted and has been allocated Rs3.7bn.
A self-reliance scheme with a Rs2.7bn rolling fund has been proposed to give interest- free loans of Rs50,000-200,000 to jobless youth.
He said the mineral sector could be used for poverty alleviation but earmarked only Rs0.62cbn for the sector.
The government intends to set up a stock exchange in Peshawar and is seeking support of the federal government in this regard.
Several austerity measures have been proposed to bring down expenditure. No treatment/training abroad, no new cars and no new posts are to be allowed unless approved by the chief minister. The construction of houses for officials and ministers on 20 marlas and 110 per cent raise in salaries of ministers, advisors etc. This is, however, being resented.
A sum of Rs7.9bn has been allocated for a pro-poor initiative under which various welfare programmes such as health insurance and provincial youth technical education etc will be launched. A Rs6bn special relief package programme for giving subsidised edible items to the poor has been proposed in the budget.
Various hydro and alternate energy projects being launched include the construction of 350 small dams.
Published in Dawn, Economic & Business, June 23rd, 2014

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ORIGINAL TEXT OF THE ARTICLE AS IT WAS SENT TO DAWN
KP budget 2014<br
By Tahir Ali
The Rs404.8bn Khyber Pakhtunkhwa balanced budget for 2014-15 with Rs139.8bn annual development programme addresses almost all the problems the province is faced with but gives only partial remedies to the economic, social and industrial woes of the impoverished province.
“The budget is a status-quo budget devoid of any change, vision and reform agenda and neglects the potential sectors. KP is beset with flight of capital, rising unemployment, terrorism and energy shortage. Joblessness is on the rise –there is 14.8 percent unemployment in Khyber Pakhtunkhwa against around 9.5 percent at national level. Province own revenues have remained stagnant. Real estate not taxed. Emergency steps were needed for economic growth, industrial revival, infrastructure development, energy supply, revival of sick industrial units, improvement in law and order, focus on technical and IT education but there is no proper roadmap for the areas. The government has failed to give a new mineral, industrial, hydel, oilg/gas and tourism policies reflective of its change agenda,” says the KP chamber of commerce and industry (Kpcci) president Zahidullah Shinwari.
Agonizing further is the fact that around 70 percent of the development funds lapsed in the current fiscal, he added.
The new budget is bigger by 69bn from the current year budget of Rs344bn while the ADP is higher by Rs21bn from this fiscal’s ADP of Rs118bn.
Major revenue receipts include Rs227.12bn federal tax assignments, Rs12bn net hydel profit plus Rs32.27bn as NHP arrears, Rs29.26bn oil/gas royalty, Rs27.29bn war on terror grant Rs35.35bn as foreign assistance besides some others sources.
KP’s own revenue receipts are estimated at Rs29bn (up by 70 per cent against the current year) include Rs19.45bn tax receipts and non tax receipts of Rs9.3bn. Rs12bn as GST on services which rose by 100 per cent is inclusive of tax receipts. The province also earns Rs2.85bn from own power plants.
The PORs target may be easily met in next fiscal and the years to come as new power plants get operational and sales tax collection targets is met for being easy,
Unlike other provinces, the budget has been divided into welfare, administrative and development sections but it is insignificant as welfare and administrative is the current budget having an outlay of Rs265bn while development budget is Rs139.8bn with Rs100bn local and Rs39bn foreign component.
The budget suggests insufficient measures to check current expenditure which has reached around 70 per cent of the total budget.
The expansion of the public sector must be a matter of concern for the subsequent government. The rising pay and pension bill of Rs176.5bn (66 percent of total current expenditure of Rs265bn) will squeeze space for development budget in future if not tackled. Industrialisation and Private sector
The finance minister promised to provide 15000 more jobs in public sector but he agreed that joblessness cannot be eliminated by government alone. Without support of private sector and for that matter economic growth, the problem couldn’t be achieved.
There seems to be a genuine attempt this time round to raise the provincial revenues locally and reduce dependence on federal and foreign funds. The PTI-led KP government has proposed a progressive tax on agriculture income, land tax and a progressive property tax.
KP has established KP revenue authority. This year a proper survey will be conducted to properly determine property tax.
It intends to raise the ratio of provincial taxes and fees on stamp duty, professionals and professional institutions, business establishments, agriculture income and salaries.
The rise in taxes/fees is expected to hit the consumers ultimately for it will be passed on to them. Strangely, a PTI-led government is to tax educational institutions including medical, engineering and law colleges.
The minister said KP is replete with abundant human and natural resources but its population is living under poverty and backwardness for unfair distribution of resources, flawed planning, joblessness, illiteracy, corruption, nepotism, weak accountability system and lack of good governance and vowed to root out these evils.
Prepared under the “Integrated Development Strategy”, the budget aims at good governance, responsive social services delivery, economic prosperity, peace, economic growth and job creation, improved transparency and accountability, enhanced fiscal space, gender equity and donor harmonization.
The minister said public private partnership act has been approved. The private sector would be involved in the construction and maintenance of public sector development projects.
Education has proved to be its biggest priority. However, important economic sectors have been allocated paltry sums: Rs3.4bn for power sector against Rs1.4bn in current year, Rs4.7bn against Rs3.28bn for irrigation and agriculture Rs1.58bn against Rs1.53bn in current year. The detailed expenditure report for the current year reveals that vital social and economic sectors of the ADP like social welfare, education, agriculture, energy/power and industries had been allocated Rs0.6bn, Rs24bn, Rs1.53bn, Rs2.2bn and Rs4.4bn respectively but actual utilisation remained at Rs.2bn, Rs3.72bn, Rs0.63bn, Rs0.65bn and Rs1bn could be utilised in this fiscal in that order.
Agriculture is the backbone of the economy as 70 per cent people in KP are dependent over it for their survival but only Rs1.5bn has been allocated for the sector. The poverty and inability of farmers to use enough quality inputs to raise their produce but the government comes up with only loans on easy terms for them.
A Board of investment and trade has been formed to ensure investment friendly environment and for economic revival. KP oil and gas authority has been constituted for better use of existing resources and to explore new ones but its impact is still not discernable.
To bring down poverty and accountability, the government has promulgated the right to information law and established a commission for access to information, access to services’ commission and conflict of interest commission, ihtesab commission, a complaint cell in CM secretariat. And a public procurement regulatory authority established to make the procurement system of hiring of services, goods and construction transparent and corruption free and introduced the market rate system instead of the composite scheduled rates to ensure transparency in development schemes.
The minister said KP industrial sector is hit by lawlessness, energy crisis, limited market, high cost of production, dilapidated infrastructure and lack of technical knowhow.
For this technical education is to be promoted which has been allocated Rs3.7bn. Technical University will be established.
Under the self-reliance scheme with a Rs2.7bn rolling fund has been proposed to give interest free loans of Rs50,000-200,000 to jobless youth on their personal guarantee.
He said the mineral sector could be used for poverty alleviation but then only allocated Rs0.62cbn in ADP for the sector.
The government intends to set up stock exchange in Peshawar to support the progress of industry and trade sectors and wishes the federal government to take further measures in this regard.
The government proposed ‘several austerity measures’ to bring down expenditure. No foreign treatment/training, no new cars and no posts to be allowed unless approved by CM. But he didn’t specify what happened to similar measures in the current budget. The minister said the government has formed committees for monetization and economy which are working with far reaching consequences, though he failed to identify any.
The construction of houses for officials and ministers on 20 marlas and 110 per cent raise in salaries of minister, advisors etc however is being resented.
Rs7.9bn has been allocated for a pro-poor initiative under which various welfare programs, such as health insurance, long-term loan for development of industries, and provincial youth technical education scheme etc would be launched. Rs6bn more allocated for a special relief package program for giving subsidized edible items to the poor.
Various hydel and alternate energy projects being launched. Rs7bn have been allocated to construct 350 small dams. 400 megawatts of electricity will be produced through gas whose cheap energy will be given to industries.