One of the major budgetary measures under consideration for the documentation of economy in budget (2011-2012) is to substantially increase the existing rates of adjustable advance tax on the registration of new cars or annual renewal of registration of vehicles to ensure filing of income tax returns for claiming refund of the deducted amount.
Sources told Business Recorder here on Sunday that the Federal Board of Revenue (FBR) is reviewing a budget proposal to bring rich non-filers of returns into the tax net, who have to renew their registration of vehicles on annual basis. Under the proposal, if the owner of vehicle would not file his return, he would not be eligible to claim adjustment of heavy amount of advance tax, which would be deducted on the annual renewal of registration of vehicles. The income tax at different higher rates may be collected as advance tax, which would be adjustable in the annual return of income. If the proposal is being implemented, it would generate billions of rupees and could be a major proposal to expand the tax base in 2011-2012.
The FBR data revealed that out of 3,461,000 car owners, only 256,632 persons have shown their annual income of Rs500,000 and above during the tax year 2010. If all the owners of up to 10-years old cars file the returns, there will be about 2.7 million return filers who will show average annual income of Rs500,000 and above. Resultantly, such persons will have to pay average income tax @5 % meaning thereby that Rs25, 000 each will be paid by them. In this way, there is a potential of at least Rs85 billion as revenue in terms of pure income tax.
According to the FBR proposal, a summary of income tax returns filed by the taxpayers in Pakistan for the Tax Year 2009 having taxable income of Rs500,000 and above showed that business individual are 16,023; salaried individuals 87,339 and employer statements filers are 143,270, resulting in total of 256,632 persons. It may be noted that there are 143,270 salaried persons whose annual income is Rs500, 000 and above but they have not filed the return and wealth statement.
The proposal is based on the poor compliance level as against the number of potential taxpayers available in the country to file the returns and pay taxes. Various measures have been taken during previous budgets for broadening of tax base, but broadening of tax base in real sense could not take place. The FBR is identifying the areas where real taxpayers can be found. These recommendations are based on the expenditure pattern of Pakistanis, which works back their probable income.
When somebody earns some income, he first of all consumes it in meeting his basic food needs and spends remaining amount in following heads: Respectable transport Preferably owned vehicles; respectable living Rented or owned premises; best education for children; expensive educational institutions; recreation activities membership of clubs; investment Real estate, shares, trading and local and international travelling, sources said.
The proposal said that majority of the citizens of Pakistan use public transport facilities, whereas a small portion of them have their own transport either provided by their employers or self owned. As per economic survey of Pakistan, 3.461 million cars were imported and locally manufactured from July 1992 to-date. A break-up of these cars is as follows: Up to 5-years old 1.979 million; 6-10 years old 0.787 million; 11-15 years old 0.390 million and 16-18 years old 0.303 million.
Source s said that the maintaining of car now a days is not an easy task, nobody with less than annual income of Rs500, 000 (ie, Rs41, 667 per month or Rs1667 per day approximately) can justify a 1000 cc and above car owned and maintained by him/her. Likewise for owning and maintaining a car of 800 CC, the person should have a minimum of Rs360, 000 as his annual income which comes out to be Rs30, 000 per month and equivalent to Rs1, 000 per day.
Out of 3,461,000 car owners; only 256,632 (8%) persons have shown their annual income of Rs500, 000 and above during the tax year 2010. If all the owners of up to 10-years old cars file the returns, there will be about 2.7 million return filers who will show average annual income of Rs500, 000 and above. Hence such persons will have to pay average income tax @5 % meaning thereby that Rs25,000 they will pay each. In this way there is a potential of at least Rs85 billion as revenue in terms of pure income tax.
In the light of the facts, it is proposed that income tax at different higher rates may be collected as advance tax (adjustable in the annual return of income). This tax should deposited by the new registration seeker and annual renewal of registration by mentioning his/her TN/CNIC/Passport number and the computerised Payment Receipt (CPR) should be presented to the registering authorities/renewing authority. The proposed tax rates should be applicable on the basis of engine capacity and age of vehicle, ranging between engine capacity of 800cc and 2000cc and above.
The adjustment of above stated tax should be allowed to the employees by their employers through monthly deduction of tax on salary income. Whereas, the business individuals and AOPs and Companies should adjust this amount at the time of filing their annual returns of income or adjusted against quarterly advance tax payments in four quarterly instalments. In case of the owners of vehicles not required to file the return of income being a non resident person having foreign source of income or for any other reason, the credit should be allowed to the user of the vehicle in Pakistan by declaring his particulars and justification of using a vehicle which is in the name of a non-resident person.
If this proposal is implemented, it will ensure real broadening of tax base and further ensure that every citizen of Pakistan who earns taxable income is paying his minimum share of tax. The matter of bringing the elite class into tax net will also be covered to some extent under this scheme. The owners of all motor vehicles whether private or commercial (except two wheel and three wheel vehicles) should be required to file annual return of income, sources added.
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