ISLAMABAD: The Federal Board of Revenue’s major guiding principles of tax policy included reduce dependence on withholding taxes, removal of undesirable tax credits, accelerated depreciation, withdrawal of exemptions/reduced rates/exemption from specific provisions etc, Personal Income Tax (PIT) reforms and rationalisation of tax rates and reduction of tax slabs.
According to a document of the Ministry of Finance, the Federal Board of Revenue (FBR) is contemplating reduction in number of withholding tax lines without compromising the documentation purposes of these taxes.
Nine withholding taxes have already been abolished and further reduction is under consideration.
It said that all out efforts are being made to increase the share of direct taxes in revenues.
Documentation of economy to increase the taxation in services, real estate and wholesale and retail is top priority.
The use of information technology is the corner stone of the FBR’s strategy for mobilisation of revenues.
It aims at automation of all business processes starting from registration to assessment and issuance of refunds.
Installation of the “Track and Trace” system, point of sale integration of retailers with the FBR’s computerised system, e-audit and e-appeals are at various stages of implementation and would be fully operational in the medium term.
The large sums of potential revenue are held up in litigation before appellate forums from Commissioners (Appeals) to the Supreme Court of Pakistan.
In order to reduce litigation, the FBR is encouraging alternate dispute resolution mechanisms, agreed assessment in appropriate cases, and out of turn hearing by appellate forums in cases involving large amount of revenues.
The tax policy measures revealed that the FBR aims at re-designing the tax system on ideal principles of taxation, which, inter alia, includes moving towards taxation of net profits under income tax and subjecting all taxable supplies to a standard sales tax regime.
The initiative involves removal of tax distortions, unnecessary exemptions, tax reductions, zero rating etc.
Major guiding principles of tax policy included corporate income tax reforms-removal of undesirable tax credits, accelerated depreciation, exemptions, reduced rates, exemption from specific provisions etc.
This aspect has already been completed by promulgation of Tax Laws (Second Amendment) Ordinance, 2021.
It also included Personal Income Tax Reforms-removal of unnecessary exemptions and rationalisation of tax rates and reduction of tax slabs.
Under the concept of the rationalisation of minimum taxes, the ideal principles of taxation envisage simple, low rate and broad-based taxation structure.
In order to achieve this goal, the FBR is rationalising presumptive and minimum tax regimes.
For the removal of anomalies in taxation, the present taxation structure is complicated and presents anomalous situation for various taxpayers, which are required to be removed.
Under the reforms of the General Sales Tax on goods, the broad guideline is that exemptions and concessions available to all goods except essential food items, health and education-related goods are to be reviewed.
Sales tax harmonisation – the FBR is pursuing sales tax harmonisation with the provincial revenue authorities, which includes common definition of goods and services, common minimum threshold, harmonised tax rates, single portal and single sales tax return.
The initiative is expected to complete in the medium term.
For the promotion of ease of doing business – the FBR is aiming at reducing difficulties of taxpayers.
The CNIC is being made as a unique identifier for all taxes administered by the FBR.
Further, valuation table for immovable properties are being harmonised with provinces.
Presently, Pakistan’s tax system is plagued with the twin issues of a narrow tax base and huge tax gap in various sectors.
A two-pronged approach to address these issues, enhanced enforcement and appropriate policy intervention will be pursued.
In the fiscal framework, the strategic priorities of the government include optimal revenue mobilisation, broadening of tax base and increase of tax net, reduction in tax expenditure, efficiency in revenue administration, increase in ratio of direct taxes and simplification of procedures for facilitation of taxpayers.
In view thereof, challenging revenue projections have been worked out for the medium term.
The FBR has already achieved expeditious disposal of refund claims through the “FASTER” system, which has been acclaimed by all stakeholders.
Automation and expeditious disposal of refunds is being actively pursued.
The initiative will be fully operational in the medium term, the Ministry of Finance added.
Copyright Business Recorder, 2021
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