The Senate panel on Friday rejected a proposal to exempt political parties from filing statements and paying income taxes.
The Senate's Standing Finance Committee instructed the authorities to provide information on 14 other companies that were also excluded from the scope of tax law.
It also rejected the government's budget proposal to impose an additional 10 billion rupee on the white-collar class by lifting the tax exemption on their allowances.
Under the leadership of Senator Talha Mehmood from JUI-F, the committee continued discussions on the 2021 Finance Act.
"The exemption of political parties (from filing declarations) harms their reputation in the eyes of the population," said MQM-P Senator Faisal Subzwari.
At one point the Standing Committee had tacitly endorsed the exception and moved on to the next clause, but only changed its decision after Senator Subzwari highlighted the problem.
The first part of the second scheme exempts the income of legal persons and natural persons from tax.
Political parties have been listed in Table 1 of Clause 66, which lists the companies that have exempted them from filing annual income tax returns and asset returns.
Senator Saleem Mandviwalla of the PPP claimed that political parties are constitutionally exempt from filing income tax returns.
Tariq Chaudhry, a member of the Inland Revenue Policy of the Federal Board of Revenue (FBR), alleged that a political party was a corporation subject to income tax.
"In India, political parties are exempt from paying taxes but not filing annual returns," he added.
There are 127 political parties registered with the Pakistani Electoral Commission (ECP), including PTI, PML-N, PPP, MQM and JUI-F.
Dr. Ikram Ul Haq, a senior tax expert, said during a speech on the Express News show The Review that only two of them had filed their income tax returns with the FBR.
Read Political parties that are exempt from filing income tax returns and paying taxes
He added that the leaders of these political parties should be given a warning for failing to make statements.
The chairman of the standing committee instructed the FBR to provide information on 14 other departments and organizations that were also exempt from income tax. The topic will be taken up again on Monday.
These institutions include Islamic Naya Pakistan Certificate Company, Abdul Sattar Edhi Foundation, Indus Hospital, Privatization Commission of Pakistan, Fauji Foundation, Securities and Exchange Commission of Pakistan, Sundus Foundation, Ali Zaib Foundation, Audit Oversight Board, the Make a Wish Foundation, and the Citizens Foundation.
"The Fauji Foundation is not a not-for-profit organization and its income should not be tax exempt," said PTI Senator Mohsin Aziz.
The sources said there was also pressure on the FBR to exempt the Space and Upper Atmosphere Research Commission (SUPARCO) from income tax.
They added that SUPARCO was providing satellite services to various companies through Pak-Set and making profits that the FBR wanted to tax.
The committee also asked the FBR to present the court order at the next session under which donations to the Prime Minister's Dam Fund would be exempt from income tax.
The Senate panel rejected the proposal to impose additional taxes of Rs 10 billion on workers by removing their exemptions for medical treatment, various allowances, and their savings in provident and pension funds.
Dr. Najeeb Ullah Malik, head of FBR's Inland Revenue Policy, said the budget proposed taxing the service allowance.
PPP Senator Farooq Naek argued that it was unfair to tax the pay grade allowance, especially at a time when they were exposed to inflationary pressures.
The Pakistani Economic Council has called for the government to withdraw its proposal to tax media spending.
The FBR has an estimated revenue of Rs.1.8 billion from collecting taxes on medical reimbursements.
It is almost equivalent to a Rs 2 billion loss of revenue the government would suffer due to the proposed reduction in capital gains tax (CGT) on trading in securities on the stock exchange.
The government has lowered the CGT rate from 15% to 12.5%.
The Standing Committee opposed the imposition of taxes on seafarers who worked 183 days or more on ships flying the Pakistani flag during a tax year.
It also rejected the proposal to levy 10% tax on income over 500,000 rupees from pension fund contributions.
The profit from debt of more than 500,000 rupees is taxable as a separate income block at a rate of 10%.
The government has also proposed that earnings from debt (from pension funds) should be taxed as a separate block of income at a rate of 10%, which the Standing Committee has rejected.
The committee adjourned its decision on the government's proposal to impose a 17% tax on sales of LED lamps and energy savers.
The budget proposal goes against the government's three-year-old policy of promoting LED power devices.