ISLAMABAD: The Federal Board of Revenue (FBR) has been proposed to abolish withholding tax of 0.3 percent on filers on cash withdrawal of Rs50,000 from banks or limit should be enhanced up to Rs100,000 in the upcoming budget 2018-19.
The Institute of Chartered Accountants of Pakistan (ICAP) has sent out budget proposals to the FBR and stated that under Section 231A, presently income tax is collected from cash withdrawal on amount exceeding Rs50,000 @ 0.3% from filer and 0.6% from non-filers.
This tax rate, according to recommendations, should be reduced preferably to nil for filers or minimum limit be increased to at least Rs100,000 and no further collection of income tax from filers on encashment of the banking instrument where tax was already collected at the time of preparation of the instrument.
The objective of the law is to broaden the tax base and to detect unreported taxable transactions. The reduction of tax rate is needed to reward and encourage the compliant taxpayers and save them from unnecessary blockade of their money, more particularly when they are not in a position, for various reasons, to adjust the tax collected against their tax liability where their overall liability for the relevant tax year is less than tax deducted/collected from different sources and as a result the taxpayer has to go through the cumbersome and time-consuming process of refund specially where amount of refund is small. In order to increase the tax base, the ICAP recommends implementing certain measures in order to curb revenue leakages and to increase tax net by increased documentation/ registration:
a) In terms of SRO 509(I)/2013 dated June 12, 2013, unregistered persons having industrial or commercial undertaking and whose bill amount, in any month, exceeds Rs15, 000 be charged with extra tax at the rate of 5% on supply of electric power and natural gas.
b) In order to induce people to get themselves registered, rate of extra tax be increased to 15% from 5% as present rate is too low.
c) After collection of extra tax as referred above for a continuous period of six months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.
All exemptions / tax concessions (like exemption on agricultural income) provided under the law should only be available to filers. Condition of being filer may be made mandatory for connection of commercial/ industrial utilities.
d) Information regarding ownership of vehicles of engine capacity over 1300cc, and sale/ purchase of immovable properties should be collected for bringing into tax net.
e)Immovable property transfers in designated areas having high value should mandatorily require filer status for seller and purchaser.
f) For purchase/ registration of car of 1300cc and above, status of filer to be made mandatory.
g) A company can deal only with filer. All stakeholders like manufacturer, trader, importer, distributor, wholesalers and retailers dealing with big corporations, like National and Multination companies, in any capacity for goods or services must be filer under Income Tax Law. Sales Tax registration should also be made compulsory to qualify for any business with Government. A company would not do any business with any non-filer.
h) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non compliance, utility companies be directed to disconnect utility connections.
I) Tax collection / deduction rates for filers be reduced. In order to avoid shortfall in withholding tax collection and to generate more tax revenues, tax rates for non-filers be increased to maximum possible extent generally for all and specifically for following sections where tax deduction rates for filer and non-filers are same at present: Under section 155 on rental income (received by individuals and AOPs) 1990 as Presumptive Tax Regime (PTR) needs a serious policy review for a sustainable growth in tax base. Nevertheless, this was not a sustainable model. It was a ‘stop-gap’ arrangement. There was a need to incorporate and institute provisions which would check aforesaid abuses.
Over a period of more than two decades, concrete measures have not been adopted to curb the abuses that led to introduction of FTR. Accordingly, PTR has continued and in certain cases, it is being promoted. Withholding taxation with normal taxation necessarily requires refund, if the tax liability determined on net income basis is less than tax withheld. There were serious abuses of refund provisions.
Accordingly, checks to that effect were introduced by way of FTR. An effective tax system can only work where there are identical tax procedures and processes are consistent for similar nature of business activities. There should be no discrimination in incidence on one sector over the other. FTR has disturbed both these aspects. There is a need to review FTR in that context. In this background, the recommendations are principally a stop-gap arrangement to shift from final tax regime to normal tax regime.
