The Federal Board of Revenue (FBR) has started the budget preparation exercise and issued outlines of the federal budget for 2012-13 to the field formations to frame taxation proposals covering tax of non-resident companies, capital gain tax (CGT), taxation on e-trading, rationalisation of presumptive tax regime (PTR), enhancement of minimum tax regime, and abolition of final tax regime.

The FBR on Wednesday issued instructions to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) on budget proposals for 2012-13.

Sources told this scribe that the Chief Commissioners of the LTUs/RTOs would submit taxation proposals for 2012-13 for tax policy formulation, covering direct taxes, sales tax and federal excise duty (FED). The tax collectors would present their proposals based on ground realities and actual impact of tax policy on the registered persons. While framing budget proposals for 2012-13, the top officials in the field formations are to submit approximated revenue implications, international best practices/precedents (if applicable), legal changes required in relevant statutes, and impact of tax proposals on various sectors of the economy.

Sources said that FBR's budget proposals would also focus on withdrawal of tax exemptions under Income Tax Ordinance 2001 and Sales Tax Act 1990 after analysis of the existing exemptions available to different sectors.

According to FBR instructions to the field formations on budget proposals, federal budget exercise 2012-13 has been initiated and the process of formulation of Budget proposals has to be completed in the context of current tax/economic practices in vogue. The suggestions/proposals should be meant to ameliorate the irritants and to rejuvenate the economic growth vis-a-vis state revenues.

As per FBR instructions, the following areas can be identified as revenue potential for enhanced efforts of optimum realisation of taxes: Broadening of Tax Base; measures for improvement in tax-to-GDP ratio; rationalisation/analysis of tax exemptions; capital gain tax (CGT); enhancement of minimum taxation regime; withholding taxes and its application for economic development in the country and rationalisation of presumptive tax regime and abolishing of the concept of the final tax regime.

The LTUs and RTOs should also give suggestions on the option for taxability under the normal tax regime of all the sectors of economy; effective monitoring of the claims/issuance of refunds; taxation of the non-residents, transfer pricing and royalty etc; taxation of human resources provider companies; taxation of e-trading; realisation of potential in the commodity trading and taxation of banking sector vis-à-vis lending borrowing ratio (being highest in the world).

The FBR has also asked the field formations to give budget proposals on the transport sector viability and potential and real estate development vis-à-vis contribution in revenue collection, the FBR instructions added.

The FBR has given deadline of February 29, 2012 to the field formations for submission of the budget proposals for 2012-13, sources said.

According to sources, prior to taking any major policy taxation measure, the tax collectors can inform the FBR about its revenue implications and practical difficulties during implementation of new taxation measures at the level of the field formations. By involving tax officials in tax policy formulation, the Chief Commissioners can inform the Board about any negative impact of tax policy change on the business and trade. This would eliminate any possibility of withdrawal of budgetary measures announced in budget as a result of strong reaction of the stakeholders in the field formations.

According to sources, the objective of the recommended tax policy changes could be revenue generation; plugging of loopholes in the scheme of law; removing inconsistencies in the existing law; improving the implementation system; streamlining rules and procedures and broadening of the tax base.