Shahid Hussain Asad, Senior Member Policy Inland Revenue and official spokesperson for Federal Board of Revenue (FBR), has said the withholding tax on banking instruments of non-filers is a documentation measure and it should not be considered as a short-term revenue generation measure. He clarified here on Saturday that it is a step to broaden the tax base and expand the tax net. In long term, it would be instrumental in generating additional revenue, but this would happen as a consequent of documentation of the potential persons operating out of the tax net.
He said that the revenue generation is not the primary purpose for imposing withholding tax on banking transactions of the non-filers of income tax returns. The FBR would be able to trace Benami accounts of traders, maintained in the names of their family members or servants to conceal income/turnover, through documentation measure of withholding tax on banking transactions of non-filers. There was an apprehension among traders that if they would declare all their accounts in returns, their turnover would increase which would raise the ratio of turnover tax.
When all accounts are declared, there would be a visible difference in the annual turnover of the business. Due to this reason, the FBR would decide about the realistic ratio of turnover tax on a sector-to-sector basis. If the business community declares all their bank accounts with a substantial increase in their sales, FBR will be ready to substantially reduce the rate of minimum tax under section 113, if required. The FBR is following a flexible approach to facilitate the 'non filers' to become 'filers' and help them to overcome all difficulties and genuine problems remaining within law.
Shahid Hussain Asad further added that the withholding tax on bank instruments of non- filers will also help trace/determine actual value of investment in real estate. At present, property is registered at DC rates which are usually 1/10 of the market rate. Due to this reason real estate is the most favourite field for parking the black/untaxed money. Even if the property is registered at DC rates which everybody knows is far less than the actual value, the seller gets actual value which is seldom paid in cash. It is normally paid through bank instruments like pay order, demand draft or crossed cheque or on line transfer, because amount in millions is difficult to be paid in cash.
This withholding tax would on the one hand will help trace the actual transaction in property on the other hand it will help bring the property rates down to a realistic level ultimately benefiting common man. It is also worth mentioning that registration on present too low DC rates is resulting in lesser revenue for the State and making 'white money' of the seller 'black' in his hands as under the law, he can take credit of only the registered value.