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Wednesday July 17, 2024

Pakistan tax bar proposals: 10pc tax on pension exceeding Rs100,000 a month suggested

Cash-based economic activity and lack of digital integration within businesses and tax collection systems result in limited information trail

By Mehtab Haider
May 09, 2024
Representational image of a tax return form. — APP File
Representational image of a tax return form. — APP File

ISLAMABAD: The Federal Board of Revenue (FBR) is considering proposals to bring uniformity in salaried taxation, slapping a 10 percent tax on pensions exceeding Rs100,000 per month and withdraw holding period on sale and purchase of real estate plots for collecting gains tax in the coming budget for 2024-25.

According to tax proposals by the Pakistan Tax Bar Associates (PTBA), which is an apex body of the 32 bars of Pakistan, taxes should be imposed on all incomes which would increase the number of taxpayers to 50,000,000, pensions of 100,000 per month should be taxed at a fixed rate of 10 percent, holding period of immoveable properties should be withdrawn and every sale and purchase transaction should be subject to capital gain tax, section 7E of the Income Tax Ordinance 2001. Also, CVT on foreign assets should be abolished for tax filers; in case of mismatching of data, only notices have to be issued by the FBR and return of income should be available on IRIS FBR portal. On indirect taxation proposals, the PTBA recommends implementation of Point of Sale at every level of trading activity, rate of tax at every level should be in a single digit i.e. 6 percent and rate of sales tax for online banking or payments made via credit/debit cards should be reduced.

For digitalisation of tax system, it was said that there is large existing compliance tax gap because of lack of failure to bring in more people to tax net such as wholesalers and service providers. A lack of adequate documentation has complicated increasing the number of new filers.

The PTBA also highlighted loopholes in the legal and administrative systems, lack of information on tax obligations and weak enforcement which undermines efficient and proper tax collection.

Cash-based economic activity and lack of digital integration within businesses and tax collection systems result in limited information trail that can be used by tax authorities to levy taxes, it said, adding that Pakistan has a complex and disjointed tax administration with top-heavy management, which lacks delegation and accountability and conflict of interest between policy makers and tax collectors.

It stated that use of Al and digitisation would help tax system at operational level. It was proposed to establish a new institutional oversight mechanisms to strengthen the governance of FBR structure and comprehensive documentation of the economy via digitalization. The PTBA also talked about facilitating tax filers. The government should mention the amount of tax money spent on each of the respective projects/activity, while under right to information (RTI) tax returns of government functionaries, judges, armed forces, ministers, senators and politicians should be available for public, salary package of FBR officials should be revised in line of the provincial revenue authority, FBR ATL List should identify the status of a tax filer, and FBR detailed quarterly performance report should be available on its website, it was proposed.