LAHORE: The Overseas Investors Chamber of Commerce and Industry (OICCI) has called on the government to demonetise Rs5,000 notes to discourage cash dealers and promote a cashless economy.
In the budget proposal to the government, the OICCI emphasized that eliminating the circulation of cash in the economy is vital for documentation. The State Bank of Pakistan (SBP) has taken positive steps in introducing and promoting the RAAST digital payment system. Similar methods should be implemented to reduce the circulation of cash in the economy.
The OICCI recommends making the National Tax Number (NTN) mandatory for opening and maintaining a bank account. Compulsory NTNs should also be issued to non-filers for specific transactions, such as vehicle and high-value property sales, foreign travel, and club memberships. Furthermore, significant banking transactions of non-filers should be monitored to uncover any assets or income beyond their means. Cash withdrawals and deposits by non-filers should be closely monitored by a separate wing of the Federal Board of Revenue (FBR), working in liaison with the Financial Monitoring Unit (FMU) of the SBP.
Additionally, tax incentives and concessions should be provided to FinTechs and merchants to promote financial inclusion and move towards a cashless economy. There should be no exempt income, including pension.
Furthermore, the OICCI has observed massive excise duty evasion (amounting to Rs82 billion) in the tobacco industry, as well as duty-not-paid goods and under-invoicing. These practices adversely affect government tax revenue. To address this, stringent controls should be in place to prevent revenue leakage. Implementing a track and trace system in the Fast-Moving Consumer Goods (FMCG), cigarettes, sugar, cement, and other sectors can enhance tax revenue and combat counterfeiting.
The OICCI proposes that digital invoicing should be mandatory for all sectors, not just limited to the FMCG sector. Additionally, the government should actively promote the platform and infrastructure for digitizing payments through fintech, point-of-sale (POS) invoices, e-invoices, mobile wallets, and other channels. This will help bring retailers and service providers into the tax net.
To foster a tax culture, communication channels such as Interactive Voice Response (IVR) scripts during phone calls, social/electronic/print media, radio channels, morning shows, campaigns, and roadshows should disseminate information about taxes and levies. Tax knowledge should also be included in the curriculum at higher school education. Moreover, educational resources and workshops should be provided to taxpayers to enhance their understanding of tax obligations and available incentives for compliance.
Rather than burdening businesses and taxpayers, the OICCI suggests offering tax credits or deductions to incentivize compliance. Recognition programs or awards for consistent compliance can foster a culture of tax responsibility. Additionally, tax incentives should be provided to businesses that invest in sustainable practices or contribute to community development projects, linking tax compliance with corporate social responsibility. Small businesses investing in employee training or job creation should receive tax credits or rebates, encouraging economic growth while promoting compliance. Active taxpayers should also receive preferential treatment in government services, such as separate counters at NADRA/passport offices. To expand the tax base further, the OICCI recommends that tax authorities leverage technology, data analytics (including Artificial Intelligence tools), and utilize databases such as 'NADRA' and the 'FBR Malomooat Portal.' By doing so, all income earners can be ensured to pay their due taxes. Data from withholding statements, submitted by withholding agents (including banks and utility companies), property registrars, excise, and sales tax returns, should be used to broaden the tax base without burdening existing compliant taxpayers.
Automation in the Integrated Revenue Information System (IRIS) can facilitate taxpayers. All tax payments on which taxes are deducted or collected should be automatically reflected in the FBR portal, referencing Computerized Receipt Payment Challans. This will help avoid discrepancies during refund verification and benefit both companies and the FBR by reducing compliance costs and monitoring assessments.
Regarding the tax rate for builders, charging Rs80 per square foot for a 3000 sq ft commercial building results in a total tax of Rs240,000. However, considering the valuation of flats in Karachi (where a 3000 sq ft flat is worth no less than 3 Crore rupees), the builder pays tax at a rate of only 0.8 percent. This discrepancy highlights the difference between salaried individuals (who pay tax at 35 percent) and corporates (who pay taxes at 29 percent + 10 percent).
Lastly, while tax on agricultural income is typically collected by provincial authorities, the FBR can explore taxing unexplained income/assets related to agriculture if it remains untaxed in the province. Effective administration and enforcement are crucial to improving tax collection from the agriculture sector.