KARACHI: The Overseas Investors Chamber of Commerce and Industry (OICCI) in its taxation proposals for the upcoming Budget 2024-25 has emphasized the need for standardizing the sales tax rates and policies nationwide, implementing a single sales tax return system under the “Pakistan Revenue Authority” and gradually reducing the sales tax rate to align with the regional average.

The lack of harmonization between federal and provincial authorities is one of the key irritants for businesses, the OICCI recommends effective coordination between Federal and Provincial legislations, particularly regarding the application of sales tax laws on distribution.

Furthermore, Trans-provincial entities should be allowed by FBR to claim WWF/WPPF paid liability as an allowable expense in their returns, irrespective of the fact that whether they had discharged these liabilities to Federal or Provincial Tax Authorities.

FY25 budget: OICCI for allocating major portion of FBR resources towards broadening tax base

As per the FBR’s annual yearbook 2022-23, as many as 29 withholding tax sections were applicable under the ITO, 2001. Over the years, the FBR has focused on simplifying the withholding tax regime to make it more convenient and business-friendly, however, the existing WHT rates are approximately more than 200 which are still too high and complex.

Due to different sub-classifications provided under multiple sections as well as discrimination in rates between active and non-active taxpayers. It is important to note, that out of 29 only 10 sections accounted for approximately 94 percent revenue collection to the tune of approximately Rs 1.76 trillion.

To simplify the withholding tax regime, the OICCI recommends that the tax rate applicable on services should be made uniform @4 percent u/s 153 as already provided to 19 service sectors. As the tax for service providers is a minimum tax, the high rate of 9 percent further increases the cost of doing business.

Additionally, the withholding tax rate should be categorized based on active and non-active taxpayers only. This will reduce the number of existing withholding rates by half. It is recommended that there should be a single rate under each section, where possible, to reduce the complexity. For example, single rates should be imposed for section 156 (Prizes and Winnings) @15 percent and section 233 (Brokerage and Commission) @8 percent etc.

The OICCI strongly emphasized addressing critical issues surrounding the procedural hurdles in processing outstanding refunds, particularly focusing on the challenges stemming from technical glitches in FASTER and ERS systems. These glitches have resulted in delays and complexities in Sales Tax refund processing for corporates, exacerbating cash flow challenges for manufacturers and exporters already grappling with increased utility prices, FX volatility, and reduced demand.

To mitigate these challenges, the OICCI recommends publication of pending refunds and details of issued refunds regularly to enhance transparency and taxpayer confidence. Additionally, an automated process for orderly clearance of tax refunds within 45 days, coupled with improvements in the efficiency of FASTER and ERS systems, is proposed to facilitate accurate refund verification and timely processing.

Furthermore, OICCI advocates for the inter-adjustment of income/sales tax refunds against tax liabilities as part of the law, aiming to alleviate the financial burden on taxpayers and streamline tax compliance procedures.

Streamlining the tax structure will not only attract significant Foreign Direct Investment (FDI) and simplify business operations for both local and foreign investors but also encourage more businesses to participate in the tax system.

Copyright Business Recorder, 2024

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