KARACHI: The federal government has proposed 0.6 percent advance tax on cash withdrawal for non-filers to bring more people into the tax net.
According to Finance Bill, advance tax on cash withdrawal is being imposed for the non-filers. Every banking company shall deduct advance adjustable tax at the rate of 0.6 percent of the cash withdrawal from a person whose name is not appearing in the Active Taxpayers’ List on the sum total of the payments for cash withdrawal in a day, exceeding Rs 50,000.
For removal of doubt, it has clarified that the said Rs50,000 shall be aggregate cash withdrawal in a single day.
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This advance tax has been imposed on the recommendation of Reform and Revenue Mobilisation Commission (RRMC) led by Ashfaq Tola. RRMC recommended that withholding tax on cash withdrawal, other banking instruments and banking transactions to be restored for non-filers of tax returns.
For the first time withholding tax on cash withdrawal was introduced through the Finance Act of 2005 and the tax targeted withdrawals was Rs 25,000 or more at a rate of 0.5 percent. However, subsequent amendments increased the threshold to Rs 50,000 and reducing the withholding tax rate to 0.3 percent for income tax return filers and increasing it to 0.6 percent for non-filers.
In 2019, the tax for tax filers was abolished, but non-filers were still required to pay 0.6 percent on cash withdrawals exceeding Rs 50,000 per day. However, in 2021, this withholding tax on cash withdrawals was completely abolished through the Finance Bill 2021 for non-filers as well.
The PRMC believed that restoration of this tax will not only help generate tax revenue but also help bring more people into the tax net.
Despite 7.6 million individuals being registered with the Federal Board of Revenue (FBR), only 3.6 million actually file tax returns, which are less than 50 percent of the registered taxpayers.
Copyright Business Recorder, 2023
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