ISLAMABAD: A research report of Pakistan Institute of Development Economics (PIDE) has strongly recommended the Federal Board of Revenue (FBR) to abolish the distinction between the filers and non-filers, as this policy measure has created distortion in business transactions and resulted in applicability of discriminatory transaction taxes.
The report revealed that to increase the number of filers, for the last couple of decades, FBR has developed numerous discriminatory taxes to segment filers from non-filers.
From bank withdrawals to asset purchases, the non-filers are penalized through transaction taxes. Despite these efforts, the revenue collection is not large but the distortion it has created in transactions and asset prices have slowed down investment and the economy. The acceptance of transaction taxes and presumptive taxes from non-filers reduces the pressure to file.
The distinction between a filer and a non-filer must be abolished. Everyone should file a tax return. Simplification and establishing a reasonable threshold (such as having a commercial utility connection, having a plot of 10 marlas or more, etc.) for filing a tax return will be a step in the right direction, it recommended.
The report further highlighted that the compliance costs in the form of preparing tax returns, collecting documents, submitting returns, and interacting with the tax authorities are very high and increasing over time.
Bigger businesses manage their cost by staffing whereas smaller businesses have to engage with consultants which increase the cost making it even more regressive. This creates a monetary cost to business which otherwise could be invested in the business for more growth and employment as discussed above.
High compliance costs make the entrepreneurs lose focus on their business development. These costs may even force some businesses to close down and keep potential entrepreneurs from starting a new venture
Large businesses report spending much larger sums and maintaining separate departments staffed with accountants. Smaller businesses, whose owners may not be highly educated, find the compliance very costly, PIDE added.
To achieve simplification of the withholding tax regime and reduce the cost of compliance, the Finance Act 2020 deleted 9 withholding tax provisions. There are another 35 out of 82 provisions in the income tax withholding regime which should be deleted.
The report disclosed that the real-time access to information and databases of various authorities such as NADRA, FIA, provincial excise and taxation departments should be allowed to the FBR. The use of the CNIC number as the NTN should be allowed to access all necessary information.
The minimum threshold of supplies by retailers to obtain the CNIC of buyers is proposed to be increased from Rs. 50,000 to Rs. 100,000. Unnecessary data should not be required from the withholding agents to reduce transaction costs and avoid additional burden on businesses (acting as withholding agents). The FBR needs to develop a data mining capacity to seek the required data.
The advance tax regime provides an incentive for filing. However, it should not be fixed or final and should be adjusted at the end of the year based on actual liabilities, report added.
Copyright Business Recorder, 2020
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