Five-year tax holiday offered on loan-free investments

ISLAMABAD: The finance minister announced on Saturday a five-year tax holiday on loan-free equity investments, called for checks and oversight of defence expenditures and identified the rising debt servicing as a major challenge for the country.
Speaking at a post-budget press conference, Dr Abdul Hafeez Shaikh said the government had prepared the budget with an eye on the general election.
There was a crisis-like situation on the one hand where the government had to create a balance between income and expenditures and, on the other, people expected relief and job creation.
“We have not been much successful in creating jobs and achieving higher growth,” the minister concededBut, Dr Shaikh, an effort had been made in the budget to provide incentives for investment. He said there had been a demand to facilitate investors who wanted to set up new factories and businesses.
“Therefore, it has been decided that there will be no tax at all for five years for those who invest their own money without raising loans.”
An official said that given the crowding out of private sector because of heavy government borrowings, the government wanted to induce capital from outside the banking system to trigger investment and, at the same time, attract black money into the formal economy.
Dr Shaikh said the government had given incentives to companies to get them enlisted on stock exchanges. The government would reduce tax rates and number of taxes to ease burden on the existing taxpayers.
He said the government had promised last year to reduce the rate of general sales tax its reforms process completed and powerful people were brought to the GST net.
“We have made substantial progress in expanding the GST net by withdrawing exemptions on fertilisers, pesticides, tractors, leather, surgical items, sports goods, carpets and some other sectors through logic and discussions. We want this time to establish credibility that promises are honoured and hence one per cent reduction in GST —from 17 to 16 per cent. This will cause a loss of Rs36 billion to the government,” he said.
Dr Hafeez said defence and debt serving costs were unavoidable. The government, he added, was trying to reduce expenditures but some of them were out of its control.
He said that security and defence were national imperatives and the government and the nation would have to sacrifice for the defence of the country. But, he added, time had come that like developed countries the use of defence allocation was improved with a better check and balance.
The minister said it had been Pakistan’s historic failure that successive governments had not been able to tax well-off people and relying on external and international borrowings to meet expenditure, which affected the social sector and infrastructure development.
Dr Hafeez said the 18th Amendment and 7th National Finance Commission Award gave greater empowerment to the provinces through additional resources and responsibilities.
He said it was good to give more autonomy to the provinces, but Rs350 billion additional transfers, as a result, affected federal finances.
He explained that the reduction in subsidies would not result in inflation because the subsidies would be made more targeted so that these were not misused by wealthy people. He said debts should now be avoided to take the country to the path of self-reliance.
In reply to a question about tax on agricultural income, Mr Shaikh said people should respect the Constitution or change it because it was a provincial subject. He said the tax was already there but its collection had been declining because nobody ever issued notices for its recovery or filing of returns.
He said that agricultural income tax collection in Sindh stood at Rs500 million in 2000 but dropped to Rs150 million last year.
He did not respond when asked how the federal government could introduce GST on services when it was also a provincial subject and was trying to pass on the responsibility of tax on agricultural income to the provinces.
Secretary Finance Waqar Masud Khan said some comments that tax targets for the next year were not realistic did not take into account 16 per cent normal growth in taxes over the current year’s expected collection of Rs1580 billion and additional earnings of about Rs119 billion through expansion of GST and better collection through administrative measures.