FBR weighs phasing out tax concessions under final tax regime

KARACHI: The Federal Board of Revenue (FBR) may withdraw concessions related to auditing and assessment of tax liabilities given to certain categories of taxpayers under the final tax regime, sources said on Monday. 

The FBR is considering to phasing out the FTR for bringing all the sectors of the economy into the normal tax regime, they added.

The sources said the FTR is treated as final tax liability at the time of deduction at certain stages.

They said this regime has created distortion in the system, and is discouraging business activities to get registered with the tax authorities.

A senior official at the FBR said the revenue body has been endeavoring to eliminate the regime, which is causing inequity in the taxation system, for the past one decade. 

“Some people are still influencing the authority to retain the concessions,” said the official.

The official said the FBR started considering to get rid of the FTR as per the proposals of the Tax Reform Commission (TRC), which strongly criticised the system.

The commission, in its interim report presented to the finance minister and forwarded to the FBR, sought measures for the implementation of the recommendations.

“Final taxation regime is fraught with the possibilities of ultimately complicating the system more than simplifying it,” the TRC said in its report.

Contrary to the FBR claims, the TRC said the tax collection body recommended continuation of the FTR to collect tax paid primarily and the tax collected by other withholding agents, with little or no efforts from tax machinery. 

“At present, tax withholding represents around 70 percent of direct tax collection and with these numbers a serious question is regarding the efforts of FBR in present scenario,” the report said. 

“Additionally, it has reduced the tax base rather than realistically expanding it, eroding the administrative efficiency as against improving it. Resultantly, it ended up in having a less documented economy.” 

The report said the regime covers the dividend, interest on bonds, certificates, debentures, securities or instruments, interest on deposits with banks, financial institutions, prize money on bonds and winning from raffle, lottery and cross words puzzles received by both resident and nonresident tax payers.

“The tax so deducted is considered as final discharge of tax liability and no allowances or deductions are permitted against the said income,” the report said. 

“Further the concept of maintaining the full sets of books of accounts also got vanished from the tax payer’s mind due to taxation of its gross receipts on presumptive basis.”

The FBR sources said eliminating FTR would be in phases as recommended by the TRC.

The commission advised that corporate sector should either be given an option to opt out from the final taxation unconditionally or the minimum tax paid for opting out of presumptive tax is allowed to be carried forward for five years as an incentive towards documentation of economy. 

Further, income of the commercial importers and commission agent should be phased out of the final taxation regime. 

“Their income should be subject to taxation on net income basis. The tax deducted on imports stage shall be made adjustable against their net income,” it said.

In the second phase, the income of the exporters and income from the supply of goods and service should be subject to taxation on net income basis, added the commission.