TRC wants govt to impose 15pc surcharge on higher income

ISLAMABAD: Stressing on the need to bringing all income, irrespective of sources, into tax net, a high-powered Tax Reform Commission (TRC) asked the government to impose surcharge of 10 to 15 percent for higher income brackets, enhancing taxable limit up to Rs500,000 per annum and enhance penalties for underground economy in the coming budget.
It also asked the government to insert a new provision into the tax law for imposing tax at the rate of 15 percent in respect of the class of taxpayer who owns property outside Pakistan for which valid declaration has not been made in the wealth statement by the taxpayer.
A draft interim report of the TRC, which will be submitted before the government and its copy obtained by The News from the FBR, reveals that the commission was going to present some important recommendations for bringing all kinds of income, including agriculture needs to be taxed. Currently, the agriculture income tax collection is less than Rs2 billion.
The TRC report states that the concept of higher income contributor needs to be introduced; whereby, all the persons earning income of more than Rs50 million should be liable to surcharge. The Surcharge at the rate of 10 to15 percent in respect of the higher income contributor should be levied for the period of three years. Ninth Schedule needs to be introduced in respect of the tax payers engaged in retail businesses having turnover of not more than Rs5 million. Immunity from audit for the period of three years should be provided in respect of the tax payer falling under the Ninth Schedule.
Tax rates should be prescribed in respect of the Land Developers and Builders provided under sections 113A and 113B. The threshold of paid up capital and undistributed reserves in respect of the Small Company should be enhanced to Rs50 million. Corporate tax rates should be brought down to 30 percent till 2018.
The report states that Benami Transaction Act needs to be introduced whereby any person enters into benami transaction should be liable to tax at the rate of 25 percent of the fair market value of the property held in benami.
The federal government, in coordination with provincial governments, should design the valuation mechanism for properties in various categories. The value needs to be revised at a level every year through independent valuer’s. The value so determined should be at minimum 75% of the current market value.
The special provision aligned with OECD guidelines in respect of transfer pricing needs to be introduced which will empower the officer of inland revenue to properly probe the transactions with associates. Immunity on account of probing against unexplained inward remittances needs to be restricted.
Harmonisation of tax rates in respect of the salaried individual and other than salaried individual and AOP. The existing slabs needs to be revisited and the maximum rate of tax should be brought down to 25 percent.
All the person generating income in all categories should get themselves registered and obtain their NTN with tax authorities. The FBR should ensure that all the NTN holders should file their tax returns along with the wealth statement. Bonus shares shall be excluded from the definition of income or not than the rate of taxation should be 1 percent.
The definition of prize needs to be inserted in Section 156 of the Income Tax Ordinance 2001. The minimum threshold for the income to be taxable under Income Tax Ordinance 2001 should be Rs500,000 for the tax year. Issuance of Prize Bond of Rs25,000 or Rs40,000 needs to be discontinued. Prize bonds of these denominations can be deposited in Bank Accounts till 31 Dec 2015. Tax so deducted on the Prize Bonds should be made adjustable that will suffice the purpose of documentation.
The report asks the government to devise measures to enhance the Tax Payers’ cost of evasion, reform the entire tax collection system preventing the tax dodgers from going underground and strengthen the tax administration to increase potential of discovering non-compliant tax payers by field survey, better data-mining and analytics. It also recommends the government to increase penalties for underground economy.
All income, irrespective of source, has to be tapped and taxed. Need for declaration of assets including bank accounts held by resident pakistanis out of Pakistan and undisclosed income outside Pakistan under a special law and regularise declared assets by payment of tax at specified rate [The Undisclosed Foreign Income and Assets Act],
In case of non-declaration of assets outside Pakistan, the assets of equivalent value in Pakistan should be forfeited under the provisions of the law along with other severe penalties:
-Informal economy has to be the main target.
- Discourage cash and all bearer instruments.
- Promote use of banks.
- Encourage Documentation.
A high level Commission/Committee has to be set up to develop a specific action plan defining KPIs and time frame to reduce the level of informal economy
The FBR should put in place effective law to the property investments and speculations. Rules for sections 113 A and 113 B of Income Tax Ordinance 2001 should be announced in the Finance Bill 2015.