ISLAMABAD: The imposition of withholding tax on the transfer of vehicles in the Islamabad Capital Territory (ICT) is resulting in loss of millions of rupees of revenue per month.
Prior to the imposition of this tax, traders, buyers and sellers are avoiding transfer of vehicles and devised a little bit cheaper mechanism to ensure their deal.
Withholding is an act of deduction or collection of tax at source, which has generally been in the nature of an advance tax payment. It is an effective mechanism and important/timely source of revenue. Its contribution is about 41 percent of total direct tax revenues. Increase from Rs 5 billion in 1991 to above Rs 169 billion in 2007 speaks of exponential growth and consequential heavy reliance on withholding taxes in Pakistan.
Sources privy to Islamabad Chief Commissioner Zulfiqar Haider on Saturday told Customs Today that the number of transfer of vehicles cases had significantly reduced after the imposition of the tax in ICT.
“Prior to imposition of this tax, around 1800 to 2000 vehicles were transferred per month and withholding tax was being collected at the rate of at least Rs 10, 000 on small vehicles” the source said, adding that rate of withholding tax on luxurious vehicles was much higher.
He said that number of transfer of vehicles had reduced to around 500 vehicles per month and thus the imposition of withholding tax was inflicting loss of millions of rupees to the revenue collection.
On the other side, the FBR is of the view that withholding tax has been imposed with the approval of Finance Minister Ishaq Dar.
“However, the collected withholding tax can be refunded on filling of income tax returns as well as this tax does not apply on vehicle older than five years,” an FBR official said on condition of anonymity.
The issue has been taken to the Council of Common Interest and decision is awaited.
Under the repealed Income Tax Act 1922, tax was deducted from two main sources of income; namely, salaries and interest on securities. Over the period of time, withholding tax net was extended, by steadily introducing different Provisions in the Tax Laws. The repealed Income Tax Ordinance 1979 brought in all the provisions of the Income Tax Act 1922.
However, in the 1990s, withholding tax net was expanded extensively by providing for withholding tax on a wider variety of transactions and making most of them presumptive. Provisions of the Income Tax Ordinance, 2001, are more or less the same, except for a few changes and additions.
Important withholding provisions relate to salary, imports, exports, commission and brokerage, dividend, contracts, profit on debt, utilities, vehicles tax, stock exchange-related provisions and non-residents.
