Wholesale, retail sectors: Govt considering ending multiple withholding taxes

ISLAMABAD: The government is considering a recommendation of the Reforms & Revenue Mobilization Commission (RRMC) to abolish multiple withholding taxes on the wholesale and retail sector in coming budget (2023-24).

The RRMC has recommended the Ministry of Finance that multiple rates of tax under sections 236G, 236H, 153 and 113 of the Income Tax Ordinance 2001 applicable to the wholesale and retail sector should be abolished.

Tax withholding under sections 236G and H should be applicable across the board on all types of goods/ sectors, with lower rates for active and higher rates for non-active taxpayers. Such withholding on the purchases side of wholesale and retail sector should be minimum tax.

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Manufacturer/ commercial importer shall provide complete details of buyer (Name/ CNIC/ NTN/ Address) in their sales tax return, as well as, withholding statement; otherwise, proportionate income tax and input tax shall be disallowed to such manufacturers/ commercial importers; likewise wholesalers/ distributors/ dealers should also provide complete details of their buyers (retailers) in their sales tax return and withholding statements they will file under section 236H; otherwise, proportionate income tax and input tax shall be disallowed.

The RRMC has also recommended increasing the rate of tax under section 148 for commercial imports from 5.5% to 8% and 3.5% to 5.5% in case of commercial importers.

The rate of withholding tax for service sector across the board and contractors should be same as different/ varying rates are creating distortions. To make the overall impact of this proposal tax neutral a detailed exercise is required.

The Minimum tax regime should be revamped/ withdrawn gradually as it is a distortion in the system.

Nonetheless until the regime exists, the taxpayers should be allowed to adjust excess of Minimum over their normal tax liability in the subsequent years subject to certain conditions explained in our detailed comments.

The revenue impact will be neutral immediately and positive for future if conditions attached for allowing the tax credits are complied with, RRMC added.

Copyright Business Recorder, 2023