Govt plans to abolish about two dozen withholding taxes

ISLAMABAD: The government is considering different proposals for abolishing around two dozen withholding taxes in the upcoming budget.

In order to promote digital economy in Pakistan, the government will actively consider abolishing withholding tax and FED fee over usage of credit cards for a period of three to five years. There are a total 40 withholding taxes at the moment and it is under consideration that about two dozen withholding taxes will be done away with through the upcoming Finance Bill 2021-22.

The major withholding taxes such as on cash withdrawal from banks, contract, supplies and on salaries would continue in the coming budget while 10 to 12 having minimum collection might be abolished.

There is a proposal under consideration that either salary tax rates should be reduced or deductible allowances should be allowed in the budget. In order to reduce litigation, the FBR is considering different proposals to bring a paradigm shift where various offers would be made to taxpayers to settle cases by paying 20 percent to 50 percent amount of total involved amount at different stages of appeals.

Official data shows that there are some withholding taxes where the FBR is collecting negligible amount. The FBR has found that around 7 to 10 withholding taxes contributed to 85 percent collection under this head out of the total number of taxes standing at over 40.

The FBR has so far collected a major chunk in the shape of withholding taxes in the current fiscal year and the board is considering to abolish almost half of existing WHT in a bid to ensure ease of doing business in Pakistan. The FBR now intends to abolish all those WHT where it is causing impediments and resulting in cost escalation.

“The government has decided to keep major revenue spinners of withholding taxes intact in the coming budget. All those WHT will also continue that are used as tool for documentation of economy,” said one top official.

The analysis done by the tax machinery showed that the FBR generated major chunk of withholding taxes from imports, salaries, dividend income, payment to non-resident, payment for goods, services and contracts, exports, electricity consumers, income from property, cash withdrawal from banks and purchase/transfer of immovable property and others. On imports, the FBR has collected Rs400 billion so far.

The WHT tax rate of distributors might be reduced to 0.25 percent, so it basically aimed at bringing distributors into the tax net. There is a proposal to exempt income tax and GST applicable on waste management for a period of five years. The government plans to grant tax incentives on Special Economic Zones (SEZ) for five-year period. The minimum tax rate of 1.5 percent might be brought down in the coming budget to the tune of 0.5 percent maximum, so the turnover tax might be fixed at 1 percent in the coming budget.