WHT collection, illegal tax exemption certificates: FBR decides to take steps to improve system

The Federal Board of Revenue (FBR) has decided to take measures to improve withholding tax collection during 2008-2009 with particular focus on controlling phenomenon of illegal tax exemption certificates at the import stage.
Sources said on Wednesday that the issue of withholding taxes and exemption certificates were discussed in the national conference of Directors General, Large Taxpayers Units (LTUs) and Regional Tax Offices (RTOs) at the FBR House here.
According to the sources, the exemption is allowed to the imports made by exempt entities. The cases, where the Commissioner issued exemption certificates or SRO-based exemptions were allowed, need to be examined to ascertain their admissibility.
The Customs authorities should strictly enforce categorisation of imports, as provided in the system, rules, "One Customs" clearance system and Pakistan Customs Computerised System (PACCs), software applications.
Under the previous provisions of income tax law (2007-2008), withholding tax was collected at the rate of five percent on imports as final tax in respect of commercial importers. However, adjustable withholding tax of one percent on raw material and capital goods imported for own use is being collected from manufacturers.
The direct and indirect exporters covered under the DTRE scheme and manufacturer exporters may import goods without payment of withholding tax. There were consistent complaints of misuse of exemption certificate and low withholding tax rate for manufacturers who reportedly sell the imported goods in open market instead of their own use putting the commercial importers in a disadvantageous position.
Therefore, a uniform rate of two percent withholding tax has been made applicable to commercial as well as manufacturer importers in 2008-2009, which will not only curb the tendency of misuse of this facility by the manufacturer resulting not only in the loss of revenue, but would also ensure a level playing field to all stakeholders.
The conference also discussed the removal of budget anomalies under the income tax law. Meanwhile, FBR Chairman Ahmad Waqar has directed the senior tax mangers to clear all the pending refund payment cases on priority basis and due payment must be made without any further delay. Addressing the Directors General of LTUs and RTOs, he said the FBR was receiving a number of complaints regarding refund payment.
"We have to reduce this number to a minimum level," he said, and added: "Simultaneously that we need to keep a constant check on fake refund claims so that no payment is made on fraudulent claims." Speaking on the on-going tax reforms programme, the Chairman asked the tax officers to extend all help and support to make programme a success.
He said that he was watching the reforms process closely to achieve the desired results. He asked the Directors General to identify the difficulties faced by them in the system so that corrective measures were taken immediately.
The Chairman asked the tax managers to share their ideas with the Board to make further progress for achieving the targets, including enhancement in tax-to-GDP ratio and broadening of tax base.
Talking about the existing image of FBR, he said: "We have to improve the perception of being unfriendly with the taxpayers. Our approach should be to help and facilitate the taxpayers," he stressed. The Chairman observed that tax collection was not an easy job, but "we have to create an environment in which the taxpayers pay the due taxes, willingly."
Earlier, Member (Direct Taxes) Irfan Nadeem briefly outlined the agenda items of the conference, which included matters pertaining to direct taxes policy, withholding taxes, direct taxes operations, recovery of arrears and revenue generation. Later, Chief of Tax Policy Saeedullah briefed the participants about the policy changes made in the budget.