Below is the remaining text of budget speech.

As you shall observe from various amendments proposed in the law through this Finance Bill, instead of promoting semi legalized culture of evasion of taxes due by being categorized as non-filers it is being ensured that all persons who are legally required to file return on income should file return of income and pay taxes on taxable income under the law.

This is a major and substantial change in the taxation paradigm of this country. We firmly believe that all persons who are required to pay taxes should file return and pay the due taxes. Nevertheless at the same time we do not want to over burden the tax filers. We are introducing very simple automated non-personal basis of filing the return of income.

These two complimentary steps will remove primary aberrations in our taxation regime. Furthermore the corporate rate for companies is not proposed to be increased despite acute budget pressure so as to promote corporatization.

It has also been ensured, that in a gradual manner the rate of tax on disposable income in the hands of businessmen undertaking business within the corporate sector be equal to those undertaking business in non-corporate sector.

RELIEF MEASURES/ EASE OF DOING BUSINESS

Issuance of Refund Bonds In order to facilitate the cash flow constraints of business concerns due to stuck up income tax refunds, an income tax refund bonds may be issued by FBR Refund Settlement Company Limited. FBR will issue a promissory note to FBR Refund Settlement Company Limited incorporating details of refund claimants and the amount of refund payable to each claimant. A similar model has been applied for Sales Tax Refunds in this financial year which has successfully addressed the concerns of business community.

Placement on ATL after Due Date of Filing of Return Previous Government has introduced a provision in law which prohibits placing a person’s name on the active taxpayers’ list if the return is not filed within the due date.

Hence, a person who files a return after the due date would still be treated as a non-filer and subjected to higher tax rates which was an injustice and a major hardship case for a person who has filed the return yet taxed as a non-filer.

In order to ease the continuation of filing tax returns even after due date, the condition of not placing name on ATL be done away with.

Withdrawal of Restriction on Purchase of Property Previous Government has imposed a restriction on registration or transfers of property exceeding rupees five million in the name of a non-filer.

It has been observed that the provision of placing restriction on purchase of property has not achieved the desired goal of increasing filers and rather such restriction has been legally challenged in Courts of law on the point of jurisdiction. Therefore, restrictions placed on purchase of immovable property may be withdrawn.

Tax Credit for Persons Employing Fresh Graduates Keeping in view the Government’s policy to create opportunities of employment for fresh graduates a new tax credit for persons employing freshly qualified graduates is proposed to be introduced.

Persons employing fresh qualified graduates from universities or institutions recognized by the Higher Education Commission would be given a tax credit equal to the amount of annual salary paid to such graduates. The tax credit shall be deducted from the tax payable by such persons.

This tax credit would be in addition to the expenditure claimed by businesses on payment of salary to their employees. Persons, who have graduated after 01 July, 2017 would be treated as fresh graduates for claim of tax credit.

REVENUE MEASURES

Increase in Tax Rates for Salaried and Non-Salaried Persons Tax rates for both salaried and non-salaried persons were drastically reduced in the Finance Act, 2018. Previously, the threshold of taxable income was Rs.400, 000.

Through the Finance Act, 2018, the threshold was substantially increased three-fold to Rs.1, 200,000 which has resulted in huge shortfall of approximately Rs.80 Billion in revenue collection. The threshold of taxable income is generally a proportion of the per capita income of a country and such significant increase is unprecedented.

It is therefore proposed that the threshold of taxable income may be revised and fixed at Rs.600, 000 for salaried persons and Rs.400, 000 for non-salaried persons. In the case of salaried individuals deriving income exceeding Rs.600, 000 it  is proposed to introduce eleven taxable slabs with progressive tax rates ranging from 5% to 35% .For non-salaried persons deriving income exceeding Rs.400, 000 it is proposed to introduce eight taxable slabs of

income with tax rates ranging from 5% to 35%. Freezing Tax Rates for Companies at 29% The tax rate for companies was 35% prior to the Finance Act, 2014. The tax rates were reduced from 35% to 30% with one percent decrease every year from the tax year 2014 to the tax year 2018.

The tax rate for companies was further intended to be reduced from 30% in tax year 2018 to 25% in tax year 2023 with one percent decrease every year. At present, the tax rate is 29%.

As the tax rates have already been substantially reduced from 35% to 29% in the last six years and considering the prevailing economic conditions, it is proposed that the tax rate for companies may be fixed at 29% for the next two years.

Receipt of Gift to Be Treated As Income One of the common methods employed to reconcile wealth acquired through undisclosed sources of income is to explain the source of investment in the form of receipt of gift. In this regard , data analysis has shown that amount of gift as shown in Income Tax Returns exceeds Rs.256 Billion.

In order to plug this loophole it is proposed that receipt of gift may be included in the definition of income from other sources. However receipt of gifts from relatives is proposed to be excluded from the purview of thismeasure. Depreciation and Brought Forward Losses Not To Be Allowed While Computing Income for Super Tax Super tax was introduced through the Finance Act, 2015.

It is imposed on all banking companies and all other persons deriving income equal to or exceeding Rs.500 million. Brought forward depreciation and business losses are excluded while computing income for calculating liability of super tax.

However, such losses are not excluded in the case of banking, insurance, oil  and mineral exploration companies. In order to ensure similar tax treatment,

it is proposed that same treatment be applied for the aforesaid sectors. Reduction of Tax Credit and Its Withdrawal after Tax Year 2019

Presently Industrial undertakings investing any amount in purchase of machinery for extension, expansion, balancing, modernizing & replacement are allowed tax credit equal to ten percent of the purchase price of machinery. This facility of tax credit was introduced through the Finance Act, 2010 and was available up to 30th day of June, 2015.

Although the facility has already consumed its utility yet it has been extended further till 2021 by the previous Government. Analysis of data indicates that this tax credit has been claimed by well established companies which would have invested even without this tax incentive.

It is therefore proposed that the said tax credit may be allowed to those companies which purchase and install plant & machinery up to 30th June, 2019.Further,for the tax year 2019, it is proposed that the tax credit may be reduced from 10% to 5% of the purchase value of machinery. The facility is proposed to be discontinued after that.

However, brought forward adjustment of the credit shall continue and initial depreciation shall also be available. Withholding Tax on Domestic Royalty Withholding tax is deducted on any payment of royalty to a non-resident person.

However, there is no such withholding tax in case of payment of royalty to a resident person. Now there is a growth in local entities which are also deriving income from royalty but the true potential of such persons cannot be gauged.

In order to provide a level playing field it is proposed that withholding tax at the rate of 15% of the gross amount of royalty may be deducted from resident persons.

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Streamlining Tax Regime for Real Estate Sector • At present capital gain on immovable properties is separately taxed on the basis of holding period of property. It is proposed that income from capital gains may also be taxed under normal tax regime at normal tax rates. It is therefore proposed that;

1. Income from capital gains on open plots is proposed to be taxed at 100% where the open plot is sold within one year and for period up to ten years. Income from capital gains on constructed property is also proposed to be taxed on similar lines when sold within period of five years.

2. In case a property is sold within one year it shall be taxed as normal income

3. Tax shall be charged on 3/4rth of the income if the same property is sold after one year. • At present if a purchaser of an immovable property pay 3% tax on the difference between the DC value and FBR value of property than he is not required to explain the source of investment on the said differential amount. This is a permanent tool for whitening of undeclared money which is against the international tax norms.

Therefore it is proposed to withdraw the tax at the rate of 3% on differential amount.

• FBR had introduced valuation tables of immovable properties in major cities. The rates notified by the Board are still considerably lower than actual market value. It is therefore intended that FBR rates of immovable properties would be taken closer to or about 85% of actual market value.

As the increase in FBR values of immovable property is going to increase the incidence of tax on genuine buyers and sellers, it is proposed that rate of withholding tax on purchase of immovable property may be reduced from 2% to 1%.

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• At present, withholding tax on purchase of property is attracted only if the value of property is more than four million rupees. There is a tendency to avoid this tax by breaking the transaction into amounts less than rupees four million whereas the actual value of property is more than four million.

In order to stop the misuse of this threshold, the withholding tax on purchase is proposed to be collected irrespective of the value of property.

• At present, there is no withholding tax on sale of property if the property is held for a period of more than three years. This is in line with the holding period for taxability of capital gain which is also three years.

As capital gain is to be taxed under normal tax regime even beyond the period of three years, it is proposed that withholding tax on sale of property be collected irrespective of the holding period to bring it in line with the proposed treatment of capital gains. Taxation, Assessment and Filing of Returns of Persons Not

Appearing On the Active Taxpayers List

The concept of making the cost of doing business higher for non-filers were first introduced through the Finance Act, 2014 and separate and higher rates

for non-filers were prescribed. However, it was misconstrued that a non- filer may still choose to not file income tax return and thereby forego the higher tax collected. Although the measure was meant to increase the number of filers yet over time the focus shifted to raising additional revenue from this measure.

Further, persons who were not required to file their return or who had just started their business were also required to file return to save them from higher tax collection.

In order to remove the misperception that non-filers can go scot free by just paying higher tax and also to remove certain anomalies, the concept of “non-filer” is proposed to be done away with. Instead, a new scheme which focuses on persons whose names are not appearing on the active taxpayers’ list [ATL] is proposed to be introduced.

The scheme is a major paradigm  shift from the erstwhile non-filer higher tax regime in that it not just penalizes those not appearing on the ATL but also introduces an effective mechanism for enforcing returns from such persons. In this regard, a new schedule titled “The Tenth Schedule” is proposed to be introduced in law which envisages the entire path to be adopted by the Inland Revenue Department to enforce returns from persons who undergo financial transactions yet choose not to file their returns of income. Changing Final Tax into Minimum Tax Regime for Certain Persons

Persons involved in certain transactions are not required to pay tax on their actual profit. Instead, the tax collected or deducted on these transactions is treated as their final tax liability. As the tax deducted is final tax, such persons are saved from scrutiny of audit. At present, final tax regime is available for commercial importers, exporters, commercial suppliers of goods, contractors, persons earning income from prizes and winnings, sellers of petroleum products, persons deriving brokerage or commission income and persons earning income from CNG stations.

In order to tap the actual tax potential, the tax collected or deducted from these transactions is proposed to be treated as minimum tax except for exporters, prizes and winnings and sellers of petroleum products. This is a step towards gradual phasing out of Final Tax Regime. Tax Rates for Persons Earning Dividend Income Dividend income is separately taxed and it is not made part of income under normal tax regime.

The general rate of dividend income is 15% which is quite low considering that no expenses are incurred in deriving dividend income. Presently dividend income is taxed at lower rates because of the fact that companies have already suffered full rate taxation.

However, there are companies which are either exempt or don’t pay any tax because of tax credits and allowances available to them.

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Therefore it is proposed that the dividend income from such companies may be taxed at 25% as opposed to the general rate. Withdrawal of Initial Depreciation on Buildings Buildings have a normal useful life exceeding approximately thirty years.

However, depreciation in buildings is allowed at the rate of 10 percent every year and in the first year, initial depreciation is also allowed at 15 percent. In this way, 25 percent of the total cost of building is claimed as depreciation in first year which is totally against the actual useful life of buildings. It is therefore proposed that initial depreciation allowance on buildings may be withdrawn being in consistent with the total life of buildings.

Taxation of Income from Profit on Debt At present, income from profit on debt is separately taxed at the rate of 10%, 12.5% and 15% for profit on debt up to five million, between five to twenty five million and exceeding 25 million respectively. The rate is proposed to be revised as 15%, 17.5% and 20% in respective thresholds of  profit.

The rate of withholding on profit on debt is also proposed to be enhanced from 10% to 15%. Further, the separate rates mentioned above would be applicable for profit on debt up to Rs.36 million and for amounts exceeding Rs. 36 million the profit on debt will be made part of the total income and taxed at normal rates.

Measures To Avoid Profit Shifting through Dealer It has been observed that manufacturers tend to appoint their associates as commission agents/dealers to whom they shift their profit margin in the form of excess commission to avoid their actual tax liability.

It is therefore proposed that any amount of commission paid in excess of 0.2 percent of the gross amount of supplies shall be disallowed unless the dealer is registered under the Sales Tax Act, 1990.

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Reduction in Limit for Not Explaining Source of Investment through Foreign Remittance from Rs.10 Million to Rs.5 Million Through the Finance Act, 2018, a limit of Rs.10 million was imposed so that source of unexplained investment up to Rs.10 million could not be probed in case of foreign remittance.

As the average workers remittance size is quite low, it is proposed that the threshold may be reduced from Rs.10 million to Rs.5 million for explaining the source of investment through foreign remittance.

Plugging Loopholes in Taxation of Banking and Insurance Companies Reforms in the present tax regime of banking and insurance sectors are being proposed. This will enable the government to tax the real income of these sectors.

PROCEDURAL MEASURES

Purchase of Property through Banking Instrument In order to capture the actual value of a real-estate purchase or sale transaction, it is proposed that persons purchasing immovable property of fair market value greater than rupees five million in the case of immovable property and one million or more in the case of movable property may be required to purchase through a banking instrument other than a bearer cheque and a penalty at the rate of five percent of FBR value of immovable property is proposed for violation of this requirement.

Further in case of violation of this condition no depreciation allowance shall be available and purchase price for capital gain purpose shall also be treated as zero. Prosecution for Non-Filing of Return Process for prosecution is proposed to be made easier. It is also proposed that the moment prosecution is filed with the special judge, arrest of the person shall be possible.

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Simplified Tax Regime for Certain Sectors

In order to broaden the tax base there is a need to simplify procedures regarding determination of tax payable and filing of return by certain sectors of economy. A new enabling section is therefore proposed to be introduced in the Income Tax Ordinance, 2001 which would empower the Federal Government to prescribe special procedures for scope and payment of tax, record keeping, filing of returns and assessment in respect of small businesses, construction business, medical practitioners, hospitals, educational institutions and any other sector specified by the Federal Government.

Approval of Trusts and Welfare Institutions for Claiming 100% Tax Credit Non-profit organizations, trusts and welfare institutions are allowed hundred percent tax credit subject to fulfillment of certain conditions. NPOs which are recognized by the Commissioner under the law are allowed 100% tax credit.

While condition of recognition of NPOs exists, there is no such requirement for trusts and welfare institutions. In order to ensure similar treatment and appraisal, it is proposed that trusts and welfare institutions may also be required to obtain recognition to avail the facility of 100% tax credit.

Obtaining Data of Comparables from Independent Chartered Accountant Transfer pricing is a common method employed by associated companies to evade income tax by not declaring transactions on their true market value.

In order to ascertain the actual market price in such situations, a comprehensive data of comparables is required. As such data is not readily available; it is proposed to empower the commissioner to obtain such data from an independent chartered accountant firm.

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Recovery of Tax of AOP from Member of AOP Under the existing law, tax payable by a member of association of persons can be recovered from the association itself. On the contrary, tax payable by an association of persons cannot be recovered from its member.

In order to ensure recovery of tax, it is proposed that where any tax payable by an association of persons, the same may be recovered from any person who is a member of the association. Separation of Audit and Assessment Functions

It is proposed that the process of completion of audit and issuance of audit report may be separated from assessment of income on the basis of audit.

By separating audit and assessment provisions in law, it is intended that functions of audit and assessment shall be performed by separate and independent officers to ensure impartial treatment to the taxpayers.

Business License for Persons Engaged In Business At present, only taxpayers are required to register with the Board for tax purposes. Persons deriving business income below taxable threshold are not required to register. In order to create a verifiable database, it is proposed that every person deriving business income, even if below the tax threshold, be required to obtain business license from the Board through NADRA’s e- sahulat centers. Business license per se would not make the licensee liable to file return.

Thank you

CONCLUDING REMARKS

The government is committed to get our country out of its financial predicament which was not of its making. A quick solution would have been to borrow extensively from all sources both external and internal. But the government has refrained itself from applying quick solutions. Instead, we have chosen the difficult path for country’s sake.

As described above we have focused on the entire gamut of financial management from macro- policy reform to business flow to med-term strategy towards debt restructuring. The initial year or so will be tough but eventually the fruits of our labour will show in aa sustainable manner to the benefit of our people and Pakistan.

I want to conclude with a reaffirmation of our resolve to serve the people of our great country. Your hopes and ours are the same, and we will do our best to realise these hopes. As Quaid-e-Azam Muhammad Ali Jinnah said, ‘With faith, discipline and selfless devotion to duty, there is nothing worthwhile that you cannot achieve’. Pakistan Paindabad.—Ends