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Caretaker Government Contemplates Tax Reforms for Retail, Agriculture, and Real Estate Sectors

Date: October 01, 2023

The interim government is exploring revisions to the taxation framework concerning retail, agriculture, and real estate, contemplating the imposition of a wealth tax on movable assets to achieve the Federal Board of Revenue’s (FBR) tax collection target of Rs9.2 trillion. According to sources, there are plans to boost the tax-to-GDP ratio to 15%, equivalent to Rs13 trillion, in the next two years.

The Cabinet Committee on Economic Revival (CCER) has been briefed that amendments to the taxation structure for specific sectors and the introduction of a wealth tax on movable assets are under consideration. The government is also evaluating the withdrawal of exemptions on three major taxes, amounting to Rs1.3 trillion annually, previously granted to influential segments and powerful lobbies. This taxation plan is being reviewed by both the federal and provincial governments, aligning with the fiscal arrangements outlined in the 1973 Constitution.

There is a contemplation of rationalizing the Capital Gains Tax (CGT) on immovable property, potentially leading to an increase in the tax-to-GDP ratio. The Federal Board of Revenue may introduce an ordinance for promulgation if a consensus is reached.

In addition, the FBR aims to simplify tax returns and withholding tax regimes, with hopes of resolving pending court cases to secure an additional Rs3 trillion.

Internal workings of the government reveal that the current tax-to-GDP ratio is 9.6%, with the FBR’s ratio at 8.5%, collecting Rs7.4 trillion in the last financial year. The FBR has proposed a tax collection of Rs13 trillion, equivalent to 15% of GDP, over the next two years.

The FBR estimates a gap of Rs5.6 trillion due to tax compliance issues and weak enforcement. According to an FBR official, the government could potentially increase tax revenues by Rs3 trillion through General Sales Tax (GST), Rs1.8 trillion through Income Tax, and Rs0.8 trillion through Customs Duty (CD) and Federal Excise Duty (FED).

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