ISLAMABAD: The Federal Board of Revenue (FBR) Tuesday assured top foreign investors maximum tax relief and incentives in the upcoming federal budget (2021-22) including abolition of withholding taxes, reduction in sales tax on the import of raw materials/inputs and procedural and legal changes in the sales tax and income tax regime to facilitate investment.
Sources told Business Recorder that the assurance has been given by the FBR team of budget makers during an online meeting with the Overseas Investors Chamber of Commerce and Industry (OICCI) on budget proposals for 2021-22.
According to the sources, the FBR has informed the representative body of top 200 foreign investors in Pakistan that 9-10 withholding taxes would be abolished in the budget.
Responding to a proposal of the withdrawal of sales tax on the import of raw materials/inputs, the FBR principally agreed to abolish sales tax on imported raw materials and inputs.
To a sales tax proposal of allowing carry forward in the same month, the FBR agreed to consider the said proposal in the upcoming budget, sources added.
During the online presentation to the FBR, the OICCI experts suggested that the withholding tax regime should be revamped and reduced from existing over 45 to five rates only for filers.
The complexity for the withholding agent has been further compounded after the introduction of active taxpayers' list and different rates for an active and non-active filer.
The Final Tax Regime should be abolished, and all withholding taxes made adjustable and the FBR to ensure persons whose taxes have been deducted file tax returns.
During the presentation to the FBR, it proposed that the tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilisation of the Nadra database and other documented sources to ensure that all income earners are NTN holders and “Filers”, with submission of annual income tax/wealth returns and wealth reconciliation statements.
The FBR and the SBP to devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of PKR two million or more during the year, have filed a tax return and wealth statement.
This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to the FBR without giving access to bank accounts. It proposed that the withholding tax rate be reduced to 0.25 percent for all distributors in line with the withholding taxes applicable on dealers and sub-dealers of fast-moving consumer goods.
The withholding tax rates applicable on services are eight percent minimum tax regardless of the actual taxable income of the service provider.
The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.
The withholding tax deduction u/s 153 (1)(a) which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list, according to the presentation to the FBR.
It suggested that there should be one sales tax return and rates rationalised on goods and services, throughout the country and aligned to 13 percent charged in Sindh.
The FBR was informed that the input adjustment to sales tax currently restricted to 90 percent only, should be allowed 100 percent for registered taxpayers.
Tax rate on dividend from IPPs and coal suppliers (having non-pass-through agreements with CPPA) and increased from 7.5 percent to 25 percent, should be restored to pre-Finance Act 2019 position.
It suggested that the mismatch in the sales tax on supply of natural gas as feed stock to fertiliser sector (five percent) and fuel stock (17 percent) against the output tax (two percent) on sale of finished goods.
This mismatch results in excessive input tax refundable build-up. The GST rate on supply of natural gas to fertiliser manufacturers should be reduced to zero percent.
Through Finance Act 2020, a new clause inserted in Section 21 of the ordinance disallowed deductions of expenses in proportion to the sales made to sales tax un-registered persons.
The aforementioned measure taken by the government is onerous, penalises tax-compliant sector which should be incentivised towards documentation of the economy.
Copyright Business Recorder, 2021
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