Enhancing withholding tax rates: Equity to be brought in next budget

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue (FBR) is planning to take some major measures in budget (2012-2013) for bringing equity in the taxation by enhancing withholding tax rates of different sectors operating under the Presumptive Tax Regime (PTR) and encouraging people to embrace normal tax regime and regularly file their income tax returns.

Sources told Business Recorder here on Sunday that the equity in the taxation would be brought in budget (2012-2013). The idea is to gradually phase out the PTR in a systematic manner. One of the methods could be increased in the rates of withholding tax on different industries/ sectors operating under the PTR. In this way, taxpayer will either have to pay higher rate of withholding tax for not maintaining books of accounts or pay lower rate under normal tax regime and file income tax returns. However, the proposal may be implemented in a phase-wise manner to enhance the rate of withholding tax on different sectors subjected to Presumptive Tax Regime.

If a taxpayer preferred to remain within the PTR, he would definitely have to pay higher rate of tax for not disclosing details required under the income tax returns. The persons operating under the normal tax regime must have advantage of lower rate as compared to those operating under the PTR.

Sources said that the proposal was to encourage the people to maintain books of accounts and file their income tax returns. At present, different sectors are operating under the PTR and finally discharge their tax liabilities. In case of final discharge of tax liability, they do not have to file their income tax returns or maintain books of accounts. But they only file the statement relating to withholding tax.

For example, commercial importers are paying five percent withholding tax; exporters one percent; suppliers 3.5 percent, contractors 6 percent; commission agents 10 percent and other sectors. These sectors are operating under final discharge of tax liability

Special treatment is being given to these sectors and they give final tax and they do not have to give any further details through income tax returns. They only file their statements and they do not maintain books of accounts.

To bring them at par with the taxpayers operating under normal tax regime through the concept of equity, the PTR would be gradually brought under the normal tax regime. The PTR would be gradually made adjustable tax so that the taxpayers should provide details of accounts etc. Presently, they only file one portion of return i.e. statement relating to the withholding taxes. Once they would be brought into the normal tax regime, they would have to maintain books of accounts and file their income tax returns.

Sources added that the budget preparation exercise would identify the sectors to be brought from the Presumptive Tax Regime into the normal tax regime.