The Pakistan Business Council (PBC), one of the country’s largest corporate sector advocacy platforms, has urged Finance Minister Muhammad Aurangzeb to consider “out of box solutions” for increasing the contribution of undocumented sector in the country’s tax collection.
In a letter to the finance minister dated 17th May 2024, a copy of which is available with Business Recorder, the PBC citing various media reports noted a “serious discrepancy” between various economic indicators and the number of income tax & sales tax filers and provided proposals for broadening of the tax base.
The proposals come as the government intends to impose new taxation measures of Rs1.2 trillion to Rs1.3 trillion in the coming budget (2024-25), which would include enhanced rates of withholding taxes on transactions of non-filers and increased tax rates on buying/ selling of immovable properties, registration of vehicles and revision in income tax slabs for salaried class.
Among the proposals, the PBC called for the Federal Board of Revenue (FBR) immovable properties to be revisited to reflect actual market value.
This would “discourage parking of black money in the real estate sector,” PBC said.
The council also called for a relaunch of the POS prize scheme. The system had remained discontinued by FBR for the past year.
“When this scheme was in place, many retailers were forced to issue QR code-based sales tax invoices due to pressure from customers as well as fear of online complaints to FBR by customers,” it said.
The PBC said the law should be amended to encourage new taxpayers to register with POS.
FBR proposes Rs1.3trn new taxation measures
“Sales Tax rate for POS integrated retailers of textile and leather sector is 15% instead of general rate of 18% [3% difference]. Sales Tax should be reduced to 14% [from 15%] for all POS integrated retailers of all sectors and to 13% in the first year for new integrated retailers.”
Moreover, the government should also absolve newly POS-integrated retailers from all sorts of tax audits /proceedings at least for the preceding as well as subsequent 3 years, it said.
Regarding Section 7E, under which tax on deemed rental income on land and property has been imposed, PBC said that the FBR needs to frame the section rules, to make it clear that this 1% will also accrue for every year of holding on non-filers in urban and semi-urban.
In case of non-payment of tax under section 7E by non-filers, PBC said that the rates should be increased for non-filers after every 5 years.
“Increase in rate for unpaid years will create deterrence and will encourage non-filer to pay tax under section 7E on a timely basis.
The PBC noted that despite being the largest contributor in GDP, the country’s agriculture sector is not contributing towards due tax collection.
It recommended the government revisit tax rates in the agriculture sector to reflect changes in the income potential from land due to efficiencies/output growth in the agriculture sector.
The PBC said that even though agriculture income is not subject to income tax, however, income tax returns and wealth filing under the Federal Income tax law, must be made mandatory for all agriculturists.
The council noted that the Withholding Tax Rate difference between filers and non-filers is nominal. It said that tax rates on non-filers should be increased to such an extent that they are encouraged by force to get themselves registered.
It proposed to increase the advance tax on electricity bills issued to non-filers (not having STRN) to 30.00%.
Moreover, it also proposed to increase advance tax on the purchase of luxurious vehicles by non-filer to 24%.
However, advance income tax for filers in all cases should either remain intact or reduced to increase the gap between filers and non-filers, PBC said.
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