The corporate tax rate is around 30 percent in Pakistan on net taxable income of a company. At least 15 percent tax is charged on the gross amount of royalties or under the head of technical service fees for non-residents and 30 percent for t he payments under presumptive tax regime. Every new federal budget brings a string of news steps, reshuffling the tax rates and tax regime without any improvement in whole system at the end. The system is there in the same fashion with calls from every side to overhaul the tax machinery. The government always puts emphasis on enhancing the tax net but tax rate is increased instead every now and then. This provokes another debate in the business circles as tax authorities and tax evaders start play hide and seek. The genuine taxpayers are the victims. The international donor agencies have been calling for structural reforms in the tax collections system. The term itself is a vague as the donors want to use taxes as a tool to ensure recovery of their loans through steady installments. However, unnecessary taxes could spoil the broth.
The new federal budget is under preparation and the Pakistan Banks’ Association has submitted a request with Federal Board of Revenue to reduce the rate of their tax to 30 percent for the fiscal year 2017-18 in line with the corporate sector. Earlier, the government had imposed flat rate of tax on the income of banking companies which the banking sector claimed entailed negative impacts on their valuation and market capitalisation. The capital gain on listed securities for banking companies is taxed at 12.5 percent in case the holding period exceeds one year and at 35 percent if the holding period is less than a year. The government had levied advance tax of 0.6 percent on banking transfers and instruments of Rs50,000 for non-filers which adversely affected the whole industry. In contrast, the government reduced income tax rates for business income of corporate sector from 35 percent to 34 percent for tax year 2014 and further to 30 percent for the tax year 2018. The banking sector demands the same concession.
What urgent need to do is to simplify the procedure of tax filing. The payment of taxes should be as easy as payment of utility bills. There is also need to slash number of taxes as well as the rate of taxes. But enhancement of tax net is the crucial area which needs a procedural change in the tax system. Only issuing a decree by the government to do this or that will not serve any purpose.
