Minister of State for Revenue Hammad Azhar on Tuesday said that government has proposed several taxation measures in federal budget 2019-20 for broadening the tax base, documentation of national economy through simplification of tax laws and a friendly tax compliance regime. Delivering his budget speech in the National Assembly, the minister said that broad principles of the proposed taxation measures for FY 2019-20 are embodied in the medium term policy framework envisioned by this government. The framework is pivoted around bridging the tax gap in revenue collection and actual potential in medium term. He said Pakistan’s tax expenditure has been estimated at Rs 972.4 billion for fiscal year 2018-2019. He said this expenditure is a consequence of the multiple tax exemptions and concessions, provided to various sectors of economy. Whereas these exemptions and concessions serve as an incentive on one hand, at the same time they tend to distort market competition and result in forfeiture of a large quantum of tax revenue. Hammad said that two-pronged efforts are proposed to be made to minimise the tax gap which include phasing out tax exemptions and concessions, gradual uniformity in value added tax (VAT) rate and review of special procedures, adding that government’s focus will be to ensure effective and harassment-free taxpayer compliance. The government, he said, has introduced a reform package by promulgating the Assets Declaration Ordinance, 2019, to allow the non-documented economy’s inclusion into the taxation system and serve the purposes of economic revival and growth by encouraging a tax compliant country. He said the government strongly believes that customs tariffs rationalisation is a key requirement to boost exports and domestic manufacturing and for this purpose, duty on more than 1,600 tariff lines, being raw materials and intermediaries in principle, is being exempted in this budget. This measure will cause a revenue loss of around Rs. 20 billion but much higher gains are expected in return from industrial growth, he added. The state minister said that textile sector is important and government’s policy is to support this sector with exemption of duty on various accessories and parts of textile machinery. Similarly, duty on elastomeric yarn and non-woven fabric is to be reduced, whereas basic raw material for paper production like wood pulp and paper scrap, may be exempted from customs duty and duty on different types of paper may be reduced from 20% to 16%. To promote non-traditional exports, duty on some of the inputs of wooden furniture and razor manufacturing also proposed to be reduced, from 3% to 0% on wood and from 11% to 3% on wooden veneering panels to save local forests and to encourage furniture manufacturers. He said that decrease in duty from 11% to 5% on steel strip for razor exporters is also being proposed. To reduce input costs of domestic home appliance industry, printing plate industry, solar panel assemblers and chemical industry, duties on their inputs like parts/components of home appliance, aluminum plates, metal surface agents and ascetic acid is also being proposed to be reduced. In order to encourage investment in large-scale manufacturing, exemption of duty is also being proposed on import of plant and machinery for setting up hydrocracker plants for oil refining. He said prohibitive regulatory duties to save forex reserves succeeded in creating import compression but some of these items shifted to transit trade and were smuggled back. It is proposed that duty structure on tyres, varnishes and food preparations for food industry may be rationalised to discourage their shifting to smuggling and realize the lost revenues on this account, he added. He said that in order to reduce cost of medicines for general public, 19 items of raw materials and essential items of medicinal use are being proposed to be exempted from 3% import duties. Similarly, medicines for rare diseases like Wilson’s disease and Cystinosis disease are proposed to be exempted from import duties. Hemodialyzer is used in hydrolysis equipment for patients suffering from kidney failure. It is proposed that its raw materials and components may be allowed duty-free import for local manufacturers, he added. The minister said that money laundering is a menace and source of bad publicity and economic cost, and that a completely new regime is being proposed to curb the practice of trade-based money laundering. A separate Directorate of Cross Border Currency Movement has also been established for focused enforcement against money laundering and currency smuggling to reflect Pakistan’s commitment towards fulfilling FATF’s action plan. Realizing the fact that any increase in duty and taxes at import stage is passed on to the consumer, effort has been made to keep revenue measures from import stage at a bare minimum, he said, adding that it is being proposed that the rate of additional customs duty may be enhanced from existing rate of 2% to 4% and 7% on tariff slabs of 16% and 20%, respectively, which in principle, are finished products, including luxury items. Presently, LNG is exempted from customs duty. Since LNG has replaced Furnace oil which was subjected to 7% customs duty, it is being proposed to levy 5% customs duty on the import of LNG.