'No effort made to end WHT regime despite documentation of economy'

LAHORE: No concerted effort is in place to put an end to the withholding tax regime despite substantial documentation of economy and computerization of tax department, said the Federal Board of Revenue (FBR) sources.

"More the economy is documented and the tax system is computerized, more is the reliance of the Board on withholding tax regime," they asserted.

While terming the withholding tax regime as spurious for the economy, the sources said the withholding tax regime had reduced the tax base rather than realistically expanding it besides eroding the administrative efficiency as against improving it. Also, they added, the regime had obliterated the concept of maintaining the full sets of books of accounts from the taxpayer's mind due to taxation of its gross receipts on a presumptive basis.

According to the Board sources, the withholding tax regime carries the possibilities of ultimately complicating the system more than simplifying it as it has afforded the revenue administration an opportunity to hide behind the façade of withholding taxes to show overall tax collection of their unit which misrepresent their actual effort in tax collections.

They have held the Task Force on Fiscal Reforms (TFFR) 1996 responsible for consolidating the expansion of withholding tax regime in the country.

They said the TFFR had thrown the gauntlet on the tax administration, charging that it was because of the Board that switch-over from the fixed presumptive tax to adjustable withholding tax was not feasible. It had further made the point that till the time the economy is completely documented and the income tax department is fully computerized duly backed by constant updating of software for assessment and collection of direct taxes, the proposed switching over may be postponed, they added.

The sources said the then policymakers were of the view that extension of this regime would substantially curtail the oft-spoken discretion of the assessing officers and brought to an end the complaints about discrimination in the matter of assessments. Also, it would make the collection of tax easy and prompt and settled once for all the complaints against officials of the income tax department regarding malpractice associated with the issuance of refunds. The Board sources said this was the most dangerous, self-defeating and self-contradictory narrative of the state's revenue function that was built by none other than the very initiative that had been put in place to strengthen and capacitate it.

They said the FBR was today collecting 95 percent of taxes by imposing more and more tax obligations on organizations and individuals in the form of withholding tax provisions.

The sources have lamented that instead of gradual phasing out of the fixed tax regime, the Board is highly depending on dozens of new withholding provisions onto the tax code.

Copyright Business Recorder, 2020