FY25 budget: OICCI for allocating major portion of FBR resources towards broadening tax base

ISLAMABAD: The Overseas Investors Chambers of Commerce and Industry (OICCI) has submitted recommendations for taxation in budget FY2024-25, that include elimination of concessions, demonetization of Rs 5,000, tax on agriculture and boarding of tax base.

According to the OICCI, tax collection currently is a fraction of the tax due to GoP. Tax-to-GDP ratio be increased to at least 15% of GDP, and recommended to allocate a major portion of FBR resources (IT, manpower, intelligence, data collection) towards broadening of the tax base.

The Chamber urged proportionate contribution of all sectors in the tax net and maintained that all sectors should contribute to the national exchequer in proportion to their contribution to GDP, including agriculture, real estate and wholesale/retail trade.

Tax on Wholesale/Retail Trade: Wholesale and retail sector is connected with the supply chain of manufacturers/importers. Hence, its documentation is linked with how manufacturers and importers transact business with them. Income tax withholding presently applicable on the purchases of wholesale/ retail sector (i.e. on sales made by manufacturer and importer) should be applied across the board (by amending sections 236G & H) and such withholding should be made at a higher rate (at least 10%).

At present some specified goods (not all) are subject to tax withholding and that too at a rate not more than 0.5%. The above tax withholding should be supplemented by reporting of sales by manufacturer/ importers, with complete details of unregistered buyers (at present unregistered sales are not reported with relevant information).

At first stage wholesalers and distributors should be required to provide information (Name, CNIC, NTN, Address) of their customers in their sales tax returns and withholding statements. Failure to do so should result in a disallowance of a portion of income tax and input tax.

For Tier-1 retailers, including jewelers, property dealers, etc, the FBR must ensure implementation of 100% POS integration, which is mandatory by law for sales tax by applying strict enforcement measures.

Immovable property: There are broadly two types of immovable properties; (a) agriculture property; and (b) non-agriculture property. In the first place, details of agriculture and non-agriculture property should be obtained by the FBR and mapped with the wealth statements of taxpayers to identify the undeclared properties and status of owners of such properties.

Withholding tax on immovable property (including agriculture land) to be collected along with property tax by provinces @ 0.5% of FBR value every year.

The tax so collected would be adjustable against tax liability of the owner (credit for income tax collected on agriculture land can be given against agriculture income tax collected by provinces). Small properties may be excluded. This would result not only in documentation but identification of undeclared property.

CGT exemption on sale of immovable property (after 4-6 years of holding) should be available to those only who have declared the property upon acquisition and such exemption should be available for one property in 3 years.

Tax on Service Providers: Bring all service providers and professionals (including doctors, private hospitals, lawyers, painters, fashion designers, property dealers, interior designers, educational institutes including private teachers, coaching center, salons etc) into the tax net by implementing mandatory POS integration and also promote awareness for POS invoicing upon payment.

Tax return filings be made compulsory for annual license renewals in the service sector. For example, doctors should submit tax declarations to the Pakistan Medical Association (PMA), and tax consultants/accountants to comply with Institute of Chartered Accountants of Pakistan (ICAP) regulations, lawyers at Bar Council etc. Hospitals should also prohibit non-filer doctors from engaging in consultancy practices. Provide digital IDs to small service providers such as plumbers, carpenters, electricians, etc.

Tax on Non-Corporate Business: Undocumented businesses are mostly undertaken in sole proprietor/AoP setups, supplemented by cash economy. There is no law which regulates such businesses. Corporate Law should therefore be amended requiring incorporation of businesses surpassing certain financial thresholds. Meanwhile the withholding tax rates for non-corporates should be enhanced significantly (like increased rates applicable in case of in-active persons) so that conducting businesses in such setups become costlier than corporate setup.

Tax on Agriculture Income: Under the Constitution, tax on agriculture income is collected by provincial authorities. However, if agriculture income is not taxed in the province, then FBR can tax it as un-explained income/assets etc. This area needs to be explored with effective administration and enforcement, to improve tax collection from agriculture sector.

Tax on Builders and Construction Association: The rate of tax on builders for a 3,000 sqft commercial building is Rs. 80/sqft which is calculated as Rs. 240,000 total. Knowing the valuation of flat in Karachi, a 3,000 sqft flat can be not be less than Rs3 crores means that the builder has to pay tax @ 0.8% only and all his liabilities vanish compared to salaried class paying tax @ 35% and corporates which are paying taxes @ 29% + 10%.

There are frequent travelers, including business and economy classes, avoiding taxes as well as identification. Income tax should be collected on all air tickets issued for foreign travel, from non-filers including applicability of withholding on hotelling and travel expenses.

Many times, taxes are avoided by temporary change of tax residential status. It is suggested that assets owned by such individuals should be treated as sold in the year they become non-resident for tax purposes. There should be no exempt income including pension.

OICCI has recommended that making NTN (National Tax Number) mandatory for opening/maintaining a bank account and issuing compulsory NTNs to non-filers for specific transactions like vehicle and high value property sales, foreign travel, and club memberships etc. Additionally, significant banking transactions of non-filers should be monitored to uncover the asset/income beyond means. Cash withdrawals/deposit by non-filers should be monitored by a separate wing of the FBR, which should work in liaison with FMU of SBP.

Effective Utilization of Available Data/Information: Tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of ‘NADRA’ and ‘FBR Maloomat Portal’ database and other documented sources to ensure that all income earners should pay due taxes.

Various data/transactions reported through withholding statements, data submitted by withholding agents including banks and utility companies, property registrar, excise, sales tax returns, etc should be used by FBR to broaden the tax base without giving burden to the existing compliant taxpayers.

The banks provide customer wise details of tax deducted on profit payment (profit on debt; Section 151), payments of goods and services (Section 153), Exports (Section 154), Export of Services (Section 154A), payments made abroad through debit/credit cards (Section 236Y) and cash withdrawals (Section 231AB) etc.

Leverage data mining techniques and advanced data analytics tools may be used to identify patterns, trends, and anomalies that indicate potential tax opportunities or unreported income.

Tax exemptions/concessions given to certain sectors or regions (for eg FATA) should be time-limited and subject to periodic review. Initiate thorough investigations into all ‘Nil’ tax returns. Eliminate the culture of Amnesty Schemes as it discourages honest taxpayers.

Based on the information exchanged through OECD Global Forum on Transparency and Exchange of Information, an appropriate action should be taken to bring undisclosed income/assets in the tax net.

Establish protocols for data confidentiality and security to ensure compliance with privacy regulations and protect sensitive taxpayer information.

Develop standardized reporting templates to facilitate regular monitoring and reporting of tax base expansion efforts based on data analysis.

Automation in IRIS to facilitation to taxpayers: all tax payments on which taxes deducted/collected should be auto reflected in the FBR portal with reference to Computerized Receipt Payment Challans to avoid any discrepancy at time of refund verification. This would benefit both companies and FBR in terms of cost of compliance and reduce monitoring assessments.

The OICCI has further asked the government to eliminate/discourage the circulation of cash in economy for documentation. The SBP has taken very positive steps in introducing/promoting RAAST digital payment, similar methods are required to be implemented to avoid circulation of cash in the economy.

Digital invoicing to be mandatory for all sectors, which is currently mandatory for FMCG sector only.

Government should promote the platform/infrastructure for digitization of payments through fintech, POS invoices, e-Invoices, mobile wallets etc. This will also help the government to bring retailers and service providers etc into the tax net.

Tax incentives and concessions should be provided to FinTechs and merchants in order to promote financial inclusion and move towards a cashless economy.

Rs 5000 notes should be demonetized to discourage cash dealings.

Separate policy making as approved by the GoP recently. Research and Analysis Wing be formed, the FBR/MoF to align with revenue with current trend. The FBR IT system be modernized and linked with critical database like that of NADRA, etc.

Massive Excise duty evasion (Rs. 82 billion) in the Tobacco industry, duty-not-paid goods, along with under-invoicing adversely affects government tax revenue. Stringent controls should be in place to arrest this huge leakage of revenue.

Incentivisation of the Taxpayers: Offer tax credits or deductions for businesses/taxpayers incentivizing compliance rather than over-burdening.

Establish recognition programs or awards for taxpayers with a history of consistent compliance, fostering a culture of tax responsibility.

Offer tax incentives for businesses that invest in sustainable practices or contribute to community development projects, linking tax compliance with corporate social responsibility.

Implement a system of tax credits or rebates for small businesses that invest in employee training or job creation, encouraging economic growth while promoting tax compliance.

Provide preferential treatment in government services for active taxpayers for e.g. separate counters at NADRA/passport offices, etc.

Tax culture should be promoted through various communication channels eg. IVR (Interactive Voice Response) scripts during phone calls, social/electronic/print media, radio channels, morning shows, campaigns/roadshows etc.

Taxes/levies knowledge should also be included in the curriculum at higher school education.

Provide educational resources and workshops for taxpayers to better understand their tax obligations and available incentives for compliance.

Copyright Business Recorder, 2024