Cellphones, gold, silver, raw materials: FBR plans to enhance WHT rates to 5pc

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue is planning to enhance withholding tax rates from existing 1-3 percent to five percent on the import of mobile phone sets, gold, silver, raw materials/inputs of industrial units/manufactures and fabrics/yarn imported by sales tax zero-rated sectors to generate an additional Rs 20 billion.

Sources told Business Recorder here on Wednesday that the FBR is drafting Statutory Regularity Orders (SROs) to revise withholding tax regime at the import stage. The FBR has identified all items at which reduced rates of withholding tax would be replaced with a standard rate of 5 percent through SROs. Other notifications are being drafted to revamp sales tax zero-rating regime. Taxation measures under consideration are estimated to generate Rs 40-50 billion to overcome revenue shortfall in second half (January-June) of 2012-13.

The estimated revenue impact has been worked out at around Rs 20 billion from enhancement in rate of withholding tax on import of different items. Measures on sales tax and federal excise would generate additional Rs 20-25 billion.

Sources said that the FBR has proposed enhancement in the rate of withholding tax from one percent to five percent on the import of mobile phone sets, gold and silver. Under Table-II of the Second Schedule of the Income Tax Ordinance 2001, tax under section 148 of the Ordinance 2001 on mobile phone sets, gold and silver shall be collected at the rate of one percent of their import value as increased by customs-duty, sales tax and federal excise duty, if any levied thereon.

The existing withholding tax rate on the import of raw materials and inputs of the industrial undertaking would be increased from 3 to 5 percent, reflecting an increase of 2 percent. As per Second Schedule of the Income Tax Ordinance 2001, tax under section 148 of the Ordinance 2001 has been collected at the rate of 3 percent on the import value of raw material imported by an industrial undertaking for its own use.

The one percent withholding tax would be enhanced to five percent on import of goods, fabrics and yarn etc by sales tax zero-rated sectors including textile, leather, surgical, carpets and sports. As per Table-II of the Second Schedule of the Income Tax Ordinance 2001, the tax under section 148 of the Ordinance 2001 has been collected at the rate of one percent on import of all fibres, yarns and fabrics and goods covered by the zero-rating regime of the sales tax notified by FBR.

At present there is no withholding tax on the imports of trading houses. It has been proposed to impose a standard rate of 5 percent withholding tax on imports by the trading houses.

The FBR will also raise incidence of the federal excise duty (FED) on cigarettes to generate additional revenue of Rs 4-5 billion.

The sales tax zero-rating may remain on the import of inputs, but domestic zero-rating would be replaced by normal standard rate regime. If the proposal is approved, the FBR will have to amend the SRO.1125(I)/2011.

Another proposal is to restore “further tax” on supplies made to unregistered persons. In this way, the FBR will impose sales tax on supplies made to un-registered individuals as well as units. The measure is expected to generate around Rs 3 billion.

Tax Reforms Coordination Group (TRCG) has reportedly proposed abolition of Presumptive Tax Regime on import, export and trade along with interest income and rent to introduce adjustable withholding tax on these categories of income. The TRCG has also proposed that the final tax regime should be converted into adjustable withholding tax on five categories of income, i.e. import, export and trade, interest income and rent under relevant provisions of the Income Tax Ordinance 2001.

TRCG has also reportedly proposed to the Ministry of Finance to abolish sales tax zero-rating at domestic stage to remove a major distortion in the value added tax (VAT) regime. TRCG also reportedly agreed to the proposal of the FBR to revise FED slabs on cigarettes to increase duty collection.