Pakistan Business Council (PBC) has asked the Federal Board of Revenue (FBR) to use stock market/property data and the National Database and Registration Authority (Nadra) information for documenting the economy and providing a level-playing field to the domestic manufacturing from the next fiscal year.
According to the budget proposals of the PBC for 2020-21, the FBR has got access to financial data in various forms including the monthly statements submitted by withholding tax agents of the various withholding deductions made by them.
This can be a start to bringing new taxpayers in the net.
In addition, the FBR has also collected data about tax paid by non-filers on property and on gains made in the stock market.
The information as per statement filed under Section 165A and the NADRA records are also available.
This can be a start to bringing new taxpayers in the net, the PBC added.
The number of taxpayers needs to be increased; the narrow taxpayer base is leading to greater pressure on the existing taxpayers.
An increase in the tax base will reduce the FBR's ever increasing reliance on existing taxpayers, it proposed.
The monthly sales declared by commercial importers should be matched with sales declared in annual income tax return as well as the credit entries in all business bank accounts.
In case of any discrepancy, reconciliation with justifiable reasons should be submitted by the commercial importers.
Online CREST system must be amended in a way to trace sales along with value addition, thereon of person to whom supplies were made by the commercial importers.
The PBC has proposed that the concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy.
Though large amounts are being collected from non-filers, no effort has been made to increase the tax base.
Non-filers for the most part have built the cost of this government levy into pricing and passed it on to their customers.
The withholding tax regime should be simplified by reducing the number of rates significantly.
The current withholding tax guide available on the FBR website is a 76-page document, clearly shows the complexity of the regime from compliance and ease of doing business.
There needs to be a significant distinction in the withholding income tax rates charged from non-filers vs the rates for filers.
Across the board, massive under invoicing and dumping of imported products has been increasing.
Information regarding values at which various custom check posts clear import consignments is not publicly available.
This encourages unscrupulous importers to under-declare the value of consignments to evade government revenues, it proposed.
In order to broaden the tax base and to achieve increase in overall tax collection without burdening existing tax payers, the policy to increase tax on non-filers/unregistered persons should be implemented specifically in the following cases:
a) unregistered industrial/commercial entities (not having STRN) having bill amount in excess of Rs20,000 per month, extra sales tax should be increased from five percent to 20 percent.
b) After collection of extra tax as referred above for a continuous period of six months, all these connections should be provisionally converted into NTN and STRNs and return filings from these connections should be enforced.
c) In case of provisional registration as above, utility companies be directed to issue show cause notices where annual billing amount exceeds Rs2.4 million and directing provisionally registered persons to obtain permanent registration.
In case of non-compliance, utility companies be directed to disconnect utility connections.
d) Moreover, in order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies.
In case of failure to provide NTN, electricity connection should be disconnected.
Considering the fact that all industrial/commercial connections will be linked with the NTN, the tax department will then be in a better position to assess the electricity consumed by commercial/industrial users and corroborate the same with amount of sales/production etc. reported in sales tax/income tax return.
e) In order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with them.
Thereafter, such commercial/industrial consumers without NTN should be charged advance income tax at 30 percent (from existing 12 percent) on their utility bills.
Those with NTN but non-filer status be charged at 20 percent WHT.
f) Residential consumers be made liable to provide NTN in case electricity bill amount exceeds Rs1.2 million per year or levy advance income tax withholding of 20 percent.
g) All exemptions (like exemption on agricultural income) under the Income Tax Law should only be made available to filers, so that exempt income is also reported and wealth is reconciled.
h) Withholding tax on international business class tickets under Section 236L is same Rs16,000 for filer and non-filer, it should be increased to Rs50,000 for non-filers.
i) Withholding tax at five percent or Rs20,000, whichever is higher, is applicable under Section 236D on all functions organised by filers as well as non-filers. Rate of withholding be increased for non-filers to Rs100,000 as minimum and no WHT from filer, PBS added.