Budget 2022-23: Number of withholding taxes to be abolished or reduced

ISLAMABAD: A number of withholding taxes would be abolished or reduced in the upcoming budget (2022-23), it is learnt.

Sources told Business Recorder on Wednesday that under the budget preparation exercise, the FBR will pick those withholding taxes having less revenue implications without compromising the objective of documentation. A new Directorate-General for Synchronized Withholding Agents System would be established to document withholding transactions in future.

The FBR will reduce the distortions caused by withholding taxes. All the withholding taxes will be reviewed to determine the distortions caused by the withholding of income tax, and adjustments will be made to eliminate these distortions. This will be accomplished by making adjustments that ensure that all the withholding tax collected is either claimed in the return filed against tax demand or is refunded.

During budget 2021-22, the government had withdrawn 12 withholding taxes including collection of tax on payment of royalty to residents; cash withdrawal, banking instruments, banking transactions other than through cash, collection of tax from persons remitting amounts abroad through credit or debit or prepaid cards, collection of tax on domestic air travel, international air travel, extraction of minerals; members by a stock exchange registered in Pakistan, collection of tax on marginal financing by NCCPL, CNG stations, and collection of tax on certain petroleum products.

Rs2,560bn direct taxes target set for next fiscal year

There were 38 withholding tax provisions in the Income Tax Ordinance, 2001. This high number of provisions adds to complexity and creates undue burden of compliance on different withholding agents. It also impacts country’s rating on the ease of doing business index. In an effort to augment ease of business and simplify the tax laws 12 withholding taxes were omitted in the last budget.

Overseas Investors Chamber of Commerce and Industry (OICCI) had proposed that the withholding tax (WHT) regime should be revamped and reduced from existing over twenty-six to five rates only for filers.

This tax should be applicable on inactive taxpayers only. Alternatively, WHT rate applicable on services at the rate of 8% is a minimum tax regardless of the actual taxable income of the service provider. This tax effectively becomes indirect tax and increases the cost of doing business for service providers; hence, tax on services should be made adjustable. 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, OICCI budget proposals added.

Copyright Business Recorder, 2022