FBR to eliminate presumptive tax regime

The Federal Board of Revenue will take measures to eliminate presumptive tax regime (PTR) and provide free of cost electronic cash registers to retailers for documentation of their daily sales on a regular basis. Briefing the National Assembly Standing Committee on Finance at the FBR House on Thursday, the tax managers shared the short and long term strategy to raise tax-to-GDP ratio, broaden the tax base and raise revenue collection.
Besides FBR Chairman Sohail Ahmed, senior FBR officials including Member Direct Tax Policy Israr Rauf, Member Customs Munir Qureshi, Member Strategic Planning and Statistics Zafar-ul-Majeed and other tax officials discussed threadbare measures to increase revenue collection.
Tax authorities informed the committee that the FBR intends to introduce tax legislation to obtain legal backing for installation of electronic cash registers at the retail outlets. Responding to this, Chairperson of the committee Fauzia Wahab informed that Prime Minister has agreed with the proposal to provide free of cost electronic cash registers to retailers to document their actual sales.
To tax the agriculture sector, amendment in the Constitution of Pakistan is needed which is not possible without the support of the federal government. The agriculture being a provincial subject only allows provinces to tax such income. In case the government amends the Constitution, the agriculture would come within the purview of the federal government, the FBR officials said.
Tax managers further informed the committee that the FBR would ensure that the protection available to the foreign currency accounts under Economic Reforms Act 1992 should not be misused. FBR members sought political will of the government with ample support of the parliamentarians for taxing black economy and brining informal sector into the tax net.
The committee has asked the FBR to submit tax proposals by upcoming Monday for presentation before the Prime Minister. Resultantly, viable proposals would be presented before the National Assembly for discussion to develop consensus among political parties. The agreed proposals would be finalised for incorporation in the Finance Act 2010 during budget preparation exercise.
Tax authorities pointed out that most of the housing schemes are involved in selling of files of plots. If transfer of plots through sale of files could be taxed, it would be instrumental in generating additional revenues. The FBR officials said that under new Value Added Tax (VAT) Law retailers having annual turnover of Rs 7.5 million would be registered. Only essential food items and life saving drugs would remain exempt and 15 percent VAT would be imposed on all other goods from July 1, 2010.
The professional service providers like doctors, engineers and architects would also be brought under VAT from July 1, 2010. The implementation of the broad-based VAT would generate around Rs 150-200 billion in next fiscal. The revenue generation from VAT implementation would reach to around Rs 600 billion in coming years.
The FBR has also proposed legislation to restrict the sale of goods by the importers, industrial units and wholesalers to the NTN holders. Tax managers informed the committee that the importers, wholesalers and big retailers are paying Rs 125 billion, which is below the actual potential. In most of the cases they deposit withholding tax collected from the consumers and do not declare their actual income. By the end of deadline of January 25, the FBR has received around 0.20 million returns.
The FBR Chairman informed the committee that Army Welfare Trust and Defence Housing Authority have claimed that their income was exempt. However, the government has already withdrawn the exemption for the trusts being run on commercial basis in last budget.
The FBR has informed the committee that out of 43000 commercial and residential rental properties in Islamabad, nearly 7000 owners are filing returns. The department has issued notices to around 11000 owners under the law. In case of non-compliance, the FBR would take enforcement action against the owners of such luxurious houses, etc.
Members of the committee requested the FBR to check non-duty paid smuggled vehicles across the country. On the conclusion of meeting, the FBR Chairman told media, sales tax exemption on sugar has caused revenue loss of Rs 7 billion. Against the assigned target for cigarette industry, a shortfall of Rs 3 billion has been witnessed from this sector during 2009-10.
He said that due to the increase in the salaries of the armed forces from January 1 2010, an additional amount of Rs 4 billion is expected. The FBR will be able to get additional revenue following increase in electricity, gas and POL prices in the remaining months of 2009-10. The revenue generation would definitely increase due to rise in utility prices during Jan-June 2009-10.
He said that the provisional tax collection in January 2010 has reached Rs 111 billion against the target of Rs 124 billion. The monthly collection may touch the figure of Rs 115 billion. He said that the board would not to take additional revenue measures in the ongoing third quarter (January-March) 2009-10. In case measures are very necessary, the FBR may exercise the option in the last quarter (April-June) period of current fiscal.