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LAHORE: Overburdening the economy with withholding tax (WHT) regime, being applicable at each joint in the transaction chain, has cumulatively enhanced the end-price of goods and services being produced in the economy, said Federal Board of Revenue (FBR) sources.

According to the sources, the year-wise tax withheld during TYs 2012 to 2016 suggests that the tax claimed in tax returns had far exceeded the tax withheld in all categories. In fact, out of the total tax withheld at Rs 451.6 billion under just 10 withholding provisions only 101.9 i.e. 77.4 percent was claimed. This is what makes the economic outputs overpriced in both production and consumption markets of the economy and uncompetitive internationally and unaffordable domestically for the lower rung consumers, they stressed.

They said the WHT regime has perverted the extractive system of the state, disengaged it from the macroeconomic framework and resultantly contributed towards enhancement of the extant economic status quo. It has weakened the traditional tax system, which should be the hallmark of all well-functional states.

Sources said the WHT regime has become the parameter of Pakistan tax system, and therefore, a highly worthy and intriguing subject of enquiry.

They said Pakistan has witnessed withholding of the entire tax system; perhaps the entire economic system, as it enveloped the whole economic market whereby at every single stage in the economic chain the state chooses to expropriate a chunk of the value of each transaction, which may be dubbed as China-cutting of transactions. The state's ostensible journey from low to high rate of withholding tax regime could be marked by a brutal sprawl of tentacles of withholding regime aggressively grabbing more and more areas of economic activity into its fold with every year passing over the past three decades, sources added.

However, some circles within the FBR justify the need and efficacy of withholding regime, saying that since withholding taxes are transaction related, they are easy to collect.

They have also asserted that in a country like Pakistan where the economy is predominantly un-documented and outreach of the department is limited, withholding taxes easily cover some otherwise difficult sources of income. They went on to maintain that taxpayers also find it convenient as their annual tax burden is spread over the year, helping them discharge their tax liability in installments, and that withholding tax regime provides considerable documentation to the economy and effective control to escapement of income being all pervasive in the economy. They have also credited withholding taxes as being able to provide a clear picture to the other economic partners and prospective investors about the taxation regime and serves as important source of policy initiatives of a country.

Copyright Business Recorder, 2020