The federal budget for the FY01 is a part of medium term (Three-year) macro economic framework (Appendix-l). The fiscal direction related to taxation system can be summarized as below:

Income Tax
To broaden the bases of taxes with reduction in their rates, the government took a number of initiatives, which are as follows:

In the light of on-going exercise of survey and registration plan for the documentation of the economy, a revised Self-Assessment Scheme (SAS) has been offered. The salient features are as follows:

The scheme is applicable to both corporate as well as non-corporate sectors with some exemptions. Persons having only salary or property income would also be eligible for the scheme. In areas where survey is being carried out, taxpayers assessment would be made on the basis of findings of the Survey Team while in other areas taxpayers will qualify for SAS if tax paid is more than 5 percent of last assessed tax. From the self-assessment cases, 15 to 20 percent cases will be selected for audit.

The scheme shall also minimize the contact between the taxpayer and income tax officer.

To inject a feel good factor, the following relief measures have been taken: To ease the problem of Salaried Class, tax on salaries has been reduced. The reduction in tax liability ranges from 80 percent for low salaried group to 5 percent for higher salaried employees. Moreover, the teachers and researchers are also allowed a further reduction of 50 percent in their tax liabilities.

To encourage Information Technology (IT), income of computer training institutions set up between 1st July 1997 and 30th June 2000 was exempted from income tax. Now this period has been extended up to 30th June 2005. Moreover, to pave the path of IT revolution, income from software exports is also exempted from 0.5 percent minimum income tax.

To encourage new investment and modernization of existing plant and equipment, the government introduced a 10 percent tax credit for new investments and Balancing, Modernization and Replacement (BMR) made during two years starting from 1st July 2000.

To encourage brokerage houses to corporatize themselves, income tax exemption, which was allowed for one year is extended to another year commencing from 1st July 2000.

The incomes of charitable institutions are exempted from minimum (0.5 percent) income tax.

The government allowed disabled persons to import specially equipped motor vehicles or support equipment for personal use free of custom duty. Further, a 5 percent withholding tax at import stage is also withdrawn.

To facilitate prompt issuance of refunds, the government decided that all cases of approved refunds would be settled within the stipulated period of 90 days. This step will not only ensure the smooth functioning of taxation system, but will also be helpful to boost exports.

The interest accrued on non-performing loans and credited to Suspense Accounts by Banks is exempted from withholding tax. However, exemption would be allowed from the assessment year 2001-2002.

To promote the objective of the documentation of the economy, the government abolished the fixed Gross Profit Rate (GPR).

To ensure strict fiscal discipline, the government imposed the following new taxes:

An additional 1 percent withholding tax is levied on imports. This will only affect those assessees for whom this is their full and final tax liability. For other assessees, it will be adjusted in their final assessment.

Presumptive tax rates on exports are increased by a percentage of 0.25 percent.

A surcharge will be levied at the rate of 5 percent on companies other than banking companies.

Wealth Tax
As a major step to reduce the number of taxes and to reduce the multiplicity of taxes, government decided to abolish the wealth tax with effective from 1st July 2001. However, the taxpayers are required to file a proper statement of their net worth, with income tax returns.

Central Excise
To rationalize the central excise duty structure, the government made certain adjustments. The government abolished central excise duty on 16 items of import on which it is not chargeable on local production. Further, the rate of additional duty on penalties is reduced from compound rate of 2 percent per month to a simple rate of 1.5 percent per month.

Sales Tax
The government introduced the following new directions in sales tax.

Understanding the problems of sales taxpayers, the government introduced the following concessions in sales tax:

The government substantially reduced the additional tax for the sales tax defaulters from 5 percent to 1.5 percent.

On taxable supplies to unregistered persons, a 3 percent further tax is leviable. Keeping in view the on-going survey and registration for the documentation of the economy and demands of the taxpayers, rate of tax is reduced from 3 percent to 1.5 percent.

Further tax is also leviable on taxable supplies to persons who are enrolled for the purpose of payment of turnover tax. For promoting the objective of documentation, it has been decided that further tax shall not be charged on supplies to such enrolled persons.

Non-compliance of various provisions of Sales Tax Act attracts specified penalties. For encouraging taxpayers to discharge their tax liabilities, amounts of these penalties is reduced to the extent of 40 to 50 percent.

To achieve self-sufficiency in meat production at affordable cost, it has been decided that oilcake used as cattle feed, shall be exempted from sales tax.

For encouraging export and facilitating the exporters, it has been decided to reduce the maximum time limit for payment of refunds to 30 days. While ensuring expeditious payment of genuine refunds, the government is committed to eliminate the menace of fraudulent refunds. Refunds of sales tax shall be allowed only against sales tax paid invoices relating to the same state in which these goods are exported.

The government also withdrew the exemption allowed on import of one passenger bus under NRI Scheme with a view to protect the interests of local industry.

Customs Duty
Exemptions
As a measure of promoting the IT industry, imports of a large number of Information Technology items are exempted from duty to enable the IT sector to take advantage of the rapidly evolving dot com revolution.

As a special incentive to promote educational and scientific research, custom duty and sales tax on goods required by these institutions is brought down from 25 percent to zero.

Customs duty and sales tax on import of all Electro-Medical and other equipment or apparatus required by hospitals has been abolished. However, hospitals must be providing cost free service or charitable non-profit making or government run medical facilities.

To improve the supply of sugar in the wake of weak sugarcane crop, customs duty on sugar has been reduced from 35 percent to 25 percent.

To rehabilitate ship-breaking industry, the rate of duty on ship-plates has been reduced from Rs 1500/-per metric tonne +15 percent to Rs 1000/- per metric tonne + 15percent.

To encourage publication of low cost books, the duty on newsprint is reduced from 10 percent to 5 percent.

The rate of duty on cars imported by disabled persons is reduced from 15 percent to 10 percent.

To provide adequate protection to local industry, the rate of duty on viscose filament yarn is reduced from 25 percent to 10 percent.

The penalty free storage/warehousing period for edible oil is increased from existing 15 days to 30 days.

To promote local industry and reduce the demonstration effect of wealth, the following measures have been adopted:

Duty on imports of televisions has been increased from 25 percent to 35 percent.
Duty on cars with engine capacity of more than 1800 CC has been increased from 225 percent to 250 percent.

Fiscal Measures taken during July-September 2000
With effect from 1st July 2000, the CBR imposed regulatory duty on import of edible oils at the rate of 5 paisa per kilogram. The Board has also levied regulatory duty on the import of oilseeds for crushing at 10 percent of the customs duty collected. The rate of regulatory duty on the export of raw hides and skins, wet blue tanned hides and skins would be at 20 percent ad valorem and on the export of uncrushed bones (all sorts), steamed bones, bone meal, bone grist and shells would be 5 percent ad valorem and crushed bone 10 percent ad valorem.

From 1st July 2000, the CBR withdrew 5 percent extra sales tax on plastic product supplies.

On 15th July 2000, the Economic Coordination Committee (ECC) decided to further reduce the custom duty on imports of sugar to 10 percent to maintain the prices in local market. The committee also directed the provincial governments to design long-term as well as short-term programs for sugarcane and earmark 15 percent of sugarcane cess for the development of sugarcane crop.

The CBR withdrew 15 percent custom duty on the import of computer casing with built-in power supply with effect from 15th July 2000. The CBR also reduced custom duty on the import of uninterrupted power supply (UPS) of a power rating, exceeding 1.5 KVA from 35 percent to 10 percent.

The federal government announced on 20th July 2000 that all gem and jewelry exporters have been exempted from payment of 6 percent withholding tax on imports of equipment and raw materials used in producing the exportable items. The items exempted include: jewelry casting powder; molding rubber; injection wax; jewelry casing machines and accessories; plating solution concentrate; bright and chrome lacquering solutions; steel balls and pins used for polishing; diamond cutting tools different sizes; alloys of silver, copper and incorporated items for mixing in 24 carat gold; mounts of gold, silver and platinum jewelry. The exemption has been allowed to promote export of gems and jewelry made in Pakistan.

The government announced a revised Tax Amnesty Scheme starting from 3rd August 2000 to 30th November 2000. According to this scheme, tax rates for each different months are as: 11 percent for August, 12 percent for September, 13 percent for October and 14 percent for November. The facility for paying in installments due to lack of cash with declarents has also been offered by payment of 50 percent tax up-front, and three equal installments with an additional tax rate of 1.5 percent per month on residual amount.

After a long period of strikes and closedown of business, the government and traders reached on an agreement on 22nd August 2000. The salient features of government-traders agreement have already been discussed in the text under the head "The Tax Survey".