Highlights, New Taxes, Relief and Incentive Measures in Budget 2021-2022

Budget Highlights Fiscal year 2022-2021

The government presented the next fiscal year’s (2021-2022) budget with a total volume of over Rs. 8 trillion.

While presenting the federal budget for financial year 2021-2022, the finance minister Shaukat Tarin presented speech in the national assembly session by portraying the state of the economy that the Pakistan Tehreek-e-Insaf (PTI) government had received when it came into power.

Shaukat Tarin said the total size of the budget or the total expenditure budget for the next year stood at Rs. 8.487 trillion — almost 19 percent higher than last year’s budgeted expenditure of Rs. 7.136 trillion.

The finance minister announced that for Financial Year 2021-2022, the government targeted GDP growth target at 4.8%. The total allocations for the Public Sector Development Programme (PSDP) budgeted at Rs. 2,135 billion for FY22, up from Rs. 1,324 billion last year.

Changes in Tax Provisions

  • The sale of goods through the online marketplace proposed to bring into the sales tax net by deeming the online marketplace as a supplier in respect of third-party sales through their platform.
  •  For specified goods, it proposed that it may made mandatory for manufacturers of such goods to obtain brand licenses for each separate brand or SKU.
  • Section 56C provides for a prize scheme to promote tax culture. To ensure that the said incentive not misused, a new sub-section proposed to insert to provide for randomizing “mystery shopping”.
  •  The rate of sales tax on potassium chlorate proposed to increase from Rs. 80 per kg to Rs. 90 per kg in addition to 17% standard rate.
  •  Zero-rating proposed to withdraw from Petroleum Crude Oil, parts/components of zero-rated plant and machinery, import of plant and machinery by petroleum and gas sector, and supply, repair, and maintenance of ships.
  • Sixth Schedule proposed to streamline and exemptions other than relating to basic food items, health, and education proposed to withdraw.
  •  The eighth Schedule proposed to streamline and reduced rates other than relating to basic food items, health, and education proposed to bring into the standard regime.
  •  Reclaimed lead and used lead batteries consists an unorganized sector. Therefore, the entire amount of sales tax in respect of sales of such goods proposed to withheld at source under Eleventh Schedule.
  • To ensure collection of due taxes, sales tax on sugar proposed to levy on the retail price by including the said product in the Third Schedule.

Relief Measures

  • The minimum annual threshold of turnover from all supplies for cottage industry proposed to increase from Rs. 3 million to Rs. 10 million.
  • The minimum wage of a laborer fixed at Rs. 20,000.
  • The threshold of shop area in case of furniture outlet/showrooms proposed to increase from 1000 square feet to 2000 square feet for inclusion in tier-1 retailer.
  • Public limited companies proposed to exclude from the purview of section 8B.
  •  A separate section introduced for allowing extension of time for furnishing of return.
  •  Exemption proposed to grant to art and printing paper for publication and printing of Holy Quran.
  •  Exemption on import of CKD kits for electric vehicles by manufacturers granted by Tax Laws (Amendment) Ordinance, 2021 proposed to incorporate in the Sixth Schedule.
  •  To facilitate international athletes, exemption to goods temporarily imported by athletes/sportsmen granted by Tax Laws (Amendment) Ordinance, 2021 proposed to incorporate in the Sixth Schedule.
  •  Tax exemption to auto disable syringes granted vide Tax Laws (Second Amendment) Ordinance, 2021 proposed to incorporate in the Sixth Schedule.
  • To encourage IT industry in the country, import of plant, machinery and raw material by Special Technology Zone proposed to exempt from sales tax.
  •  To facilitate farmers and encourage the storage of grain, tax exemption on locally manufactured silos proposed to grant till 30.06.2026.
  •  Reduced rate of sales tax @ 1% on locally supply of electric vehicles granted vide Tax Laws (Amendment) Ordinance, 2021 proposed to incorporate in the Sixth Schedule.
  • In order to address the litigation issue, a fixed tax on SIM cards proposed to delete with effect from 1st July, 2021.
  •  Exemption from value added tax on import of electric vehicles, CKD kits for a small car, 2-3 wheelers, HCVs and all these vehicles in CBU conditions granted vide Tax Laws (Amendment) Ordinance, 2021 proposed to incorporate in the Twelfth Schedule.
  •  For facilitation purposes, the concept of constructive payment proposed to introduce in section 73.
  •  To provide relief to the registered persons, the benefit of compensation for delayed payment of refund is also proposed to be extended to those persons in whose case order under section 66 is passed.
  •  For promoting ease of doing business, the concept of Common Identifier Number is proposed to be introduced.
  • For the establishment of Border Sustenance Markets, exemption from sales tax is proposed to be granted on food-related and other consumable goods.
  •  In order to introduce the umbrella Export Facilitation Scheme by Customs Wing, exemption on import and zero-rating on local supplies in respect of raw materials, components, parts and plant and machinery to authorized exporters is proposed.
  •  Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly, it is proposed that small cars up to an engine capacity of 850cc may be exempted from value-added tax besides reducing the sales tax rate from 17% to 12.5%.

Other Incentives

  • Reduction of ACD on goods falling under 2436 tariff lines pertaining to 20% customs duty slab from 7% to 6%.
  • Extension in exemption from customs duties on import of COVID-19 related items for further six months.
  • Exemption of CD &ACD on Inputs of Ready-To-Use Supplementary Foods (RUSF) and Ready-To-Use Therapeutic Food (RUTF).
  • Exemption of CD & ACD on 06 life-saving drugs.
  • Enhance the value of unsolicited gifts through post or courier from Rs. 20,000 to 30,000.
  •  Exemption of CD & ACD on import of grain storage hermetic bags and cocoons.
  • Rationalization of tariff structure on the auto sector

Revenue Measures

  • In order to reap reasonable revenue from this sector, federal excise on mobile phone calls exceeding three minutes @ Re 1 per call, SMS message @ Rs. 0.1 per SMS, and internet data usage @ Rs. 5 per GB is being proposed. This will result into mild taxation of a broad spectrum of the population.
  • Electronically heated tobacco products are also proposed to be brought into the tax net by inserting new S. No. 8c of Table-1 of the First Schedule to the Federal Excise Act, 2005.

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