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Bull's eye budget.

Bull's Eye Budget

The Finance Bill 1991 has been passed by the National Assembly. The professional assessment of the Finance Bill as a whole is not good as reflected in the discussion surfaced in the seminars held so far. The overall impact of the measures will be felt when these are implemented. At the moment, statements are pouring in; some admiring the budget, others criticising the measures envisaged therein. The cool and thoughtful approach would reveal that the last drop of lemon is being squeezed from already over-burdened poor masses. The impact can only be visualised. In the back-drop of deplorable rate of literacy in our country, the legal implications can hardly be understood even by affected parties. The lack of tax-education and tax-mindedness paves way for upsetting the targets. The amendments sought in various laws are briefly discussed hereunder: -

Income Tax: Radical changes are being made thereby chaning the concept of "Total Income" by treating and taxing the entire amount of Imports and Receipts as Income of the assessee and adjusting the tax collected/deducted therefrom as final discharge of tax liability. (Section: 80 C). The effect of this amendment will be that the entire tax collected on import value/ deducted on gross receipts is wiped-out as if the landed cost/bill amount is the Total Income of the assessee. It will entail lot of complications. If tax is collected u/s 50 (5) on imports and also deducted u/s 50 (4) on supplies, there is no provision for refund of tax in that case. So the assessee is doubly-hit. - Interest or profit from bank, on bonds, certificates, debentures, banking instruments, and dividends have been taxed @ 10 per cent of such income without allowing any statutory deductions and exemption. This will adversely affect the retired personnel and investors thereby causing fall in savings and investments. Moreover, the very nature of bearer bonds/certificates has been erased as tax will be deducted @ 10 per cent (Section: 80 B). - Minimum tax @ 0.5 per cent has been levied on turn-over from all sources in case of companies where no tax is payable by them or the tax payable is less than 0.5 per cent of the said turn-over (Section: 80 D). This amendment will hit even companies whose income is not taxable or the taxable income is nil due to tax credit/rebates, etc. The ceiling of minimum tax will certainly affect the profitability of the companies; resulting in slump in industrialisation. - The limit of tax deduction u/s 50 (4) has been done away with which was previously Rs. 50,000 in case of goods supplied or contracts executed and Rs. 10,000 for services rendered. Further, in addition to company, partnership firm is now also required to deduct tax u/s 50 (4). This will create extra burden on small firms and individuals for maintenance of records and payment of tax deductions. - The credits and rebates as allowed u/s 105, 105A, 106, 107 in respect of investment in shares, debentures, BMR have been withdrawn from 1-7-1991. Thus substantial relief in taxation of companies has been taken away which will deter the pace of economic development in the country. - Allowances and reliefs u/s 39 to 44-A, 46 and 47 in respect of investment allowance, retirement benefits, and allowance for donations have been scrapped off. - Rebates in Super Tax of companies allowable under clauses (ii) to (vi) of Part-II Para A of First schedule have been deleted thereby increasing the tax burden of the companies. - Gain on disposal of each of the fixed assets will now be taxable irrespective of class of assets.

Corporate Assets Tax: This new tax has been levied on companies on the value of assets exceeing Rs. 50 millions, If the exemption limit is crossed by even Rs. 100, the company will have to pay tax of Rs. 500,000. There is no marginal relief. Moreover, there is no facility for adjustment of loans procured against specified assets. The companies falling in wealth tax net, have to bear extra burden of CAT on the same assets subject to wealth tax.

Central Excise: Duty on spun yarn increased by Rs. 2 per kg. Thereby making the woven and knitted products dearer.

Sales Tax: (i) Additional tax of 25 paisa per square meter levied on processed fabrics; enhancing the cost of end-products. (ii) Extension of tax net by withdrawal of exemption from items notified.

General: (i) Increase in rates of telephone calls by 25 per cent (internal) and 20 per cent (external), (ii) Export development surcharge levied @ 0.25 per cent on value of exports, (iii) Levy of tax @ 1 per cent on bank loans.

No doubt, there are plus points also in the proposed amendments yet the sacrifices outweight the gains. The price reliefs to be provided for atta, ghee and gram pulse will not balance the common man's budget due to heavy impact of new/ additional taxes. It is the consumer who is to suffer. The concept of direct taxation in a developing country is pegged with indirect taxation. The benefit from the planned centers of relief will accrue depending on how the things are tacked subject to the availability of required funds. The case in point is of IQRA Surcharge which was distinctly meant for education purposes but merged with other receipts to affect the deficit. We should be realistic in our approach rather than beating about the bush to go for half-baked policies. Time and experience would reveal the outcome of over-ambitious planning.
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Title Annotation:Finance Bill 1991 as passed by Pakistan's National Assembly
Author:Karim, Zakaria
Publication:Economic Review
Date:Jul 1, 1991
Words:922
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