ISLAMABAD: The Federal Board of Revenue (FBR) has proposed to double almost all withholding taxes on non-filers, said sources in the Finance Ministry.
Sources said that Finance Minister Ishaq Dar and Finance Secretary Tariq Bajwa were very critical of FBR’s budgetary proposals. Dar did not accept the proposal to increase the 2% Further Tax to 3%, which is applicable on unregistered persons, which would have increased sales tax to 20%. Only 150,000 file sales tax returns.
However, the minister endorsed the proposal of increasing the minimum tax rate, applicable to all companies and individuals earning more than Rs10 million annually.
Most of the tax measures that had passed through the scrutiny process despite ministry’s reservations would add to the burden on existing taxpayers, said sources in the finance ministry.
The FBR argued that without these measures, it could not add Rs500 billion to tax receipts next year. It expressed reservations about rejection of many of its proposals.
Like previous years, the FBR failed to come up with proposals that could widen the tax base without further burdening the existing taxpayers, said sources.
However, since the government is targeting over Rs4 trillion in revenue collection in fiscal year 2017-18, the finance ministry is focusing more on increasing income tax for all non-filers of tax returns. This means increasing the tax rates for all income earners except for 1.1 million individuals and companies that file tax returns.
The government may also enhance the tax on dividend income for return filers from 12.5% to 15%. This will generate an additional Rs5 billion in revenues.
Dividend income includes distribution by a company of accumulated profits, debentures, debenture stock or deposit certificate in any form, with or without profit, to its shareholders.
There is also a proposal to enhance the tax on profit from debt, securities and investment in bonds made by the non-filers. The existing tax rate is 10% for return filers whereas for non-filers it is 17.5%.
According to the main proposal, the FBR will treat most of the tax paid by the non-filers as final liability and will not return it even if they file returns afterwards. Only a certain percentage will be given back.
The government had introduced the policy of creating a distinction between filers and non-filers of income tax returns in 2013 in the hope that this will broaden the tax base. However, the policy has failed to bear fruit as the tax base remains extremely narrow comprising 0.5% of the population.
The different tax rates for filers and non-filers have become an easy way of revenue generation for the FBR without making efforts. It collects 87% of total revenue through indirect taxes including withholding tax. If the government accepts the new tax rates, the FBR’s reliance on indirect means will cross 90% of revenue receipts.
The FBR has also proposed reduction in withholding tax on commercial importers from 5.5% to 4%.
