The two important components of art of taxation are convenience and economy. The Central Board of Revenue (CBR), for the last many years, has very intelligently shifted its prime responsibility of collecting Income Tax (Tax) to the persons making the payments.
This shift has achieved the economy and convenience for the CBR, thus fulfilling the requisite of good taxation system. But on the other end the person collecting or deducting tax is neither at convenience nor is having any economies. For him to do this thankless service on behalf of CBR requires extra efforts and resources.
The system of deducting the tax form payments or collecting the same along with other collection and thereafter paying it to the credit of Federal Government is commonly known as withholding tax regime. According to the last year figures of tax collection, the tax collecting and deposit under the withholding tax regime was more than the same collected directly by the huge establishment of tax collectors.
While the collection of Sales Tax and Excise (indirect taxes) are totally dependent on the person who makes supply or the same is charged at import stage, the collection of Income Tax (direct tax) is partly dependent on the tax deducted/collected at source and partly on the tax paid by the persons as advance tax or final tax along with the return.
The major portion of income tax as stated earlier comes from the tax deducted by the withholding tax agents. These withholding tax agents are performing the job and that too without any reward purported to be done by the CBR. To quote one example of Canada where a small percentage of total GST charged is left as record keeping expenses to the person filing the return.
Opposite to this what is the reward in Pakistan for collecting/deducting tax? Harassment and humiliation in different shapes and forms!
Furthermore withholding tax agents are required to keep records and file different returns quarterly and or annually. These old fashioned returns have unnecessary and sometimes irrelevant column. Apparently there seems to be no use at any end for the hard copies of these returns being filed under the present system.
For example the quarterly return of tax collected from telephone users run into hundreds of pages. It is beyond imagination as to what use somebody makes of the hard copies of these returns, especially in this era of technology where soft copies can be downloaded with convenience and for better use.
This paper is written to suggest some simplification in collecting, depositing, and filing procedures under the withholding tax regime. Before going into the details of the suggestions for simplification, I would like to draw your attention towards the relevant sections under which the tax has to be deducted/ collected with special attention to the confusing words used in these sections.
The use of simple and commonly understood language is the beauty of Law which is not found in these section. The sections 148 to 156 are given below with words in bold requiring emphasis:
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Section Nature of Payments
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148 Imports The Collector of customs shall collect advance tax
149 Salary Every employer paying salary to an employee shall, at the time of
payment deduct tax
150 Dividends Every resident company paying a dividend shall deduct tax
151 Profit on debt 1. Where
(a) a person pays yield on n account
(b) a banking company or financial institution pays
(c) the federal government, a provincial government or local
authority pays
d) a banking company, a financial institution, a company-----or a
finance society pays
152 Payments to non-residents Every person paying
153 Payments for goods and services Every prescribed person making a payment
prescribed person means
(a) the Federal Government
(b) a company other than a small company s defined in clause
(59A) of section
(c) an association of persons constituted by or under law
(d) a foreign contractor or consultant; or
(e) a consortium or joint venture
154 Exports Every authorised dealer in foreign exchange shall, at the time of
realisation of foreign exchange proceeds------deduct tax from the
proceeds
155 Income from property Subject to sub-section 2, every prescribed person making
payment --------
Prescribed person means the Federal Government, a
Provincial government, a company a non-profit organisations or
a diplomatic mission of foreign state.
156 Prizes and winnings Every person paying (prize on)
156-A Petroleum products Every person selling petrol products to a petrol pump
156-B Withdrawal of balance A pension fund manager making payment under pension fund
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In the above table it will be noticed that except for Section 148 which requires the collection of tax all other sections relate to deduction of tax. Contrarily to this in Chapter XII-The transitional Advance tax provisions, Section 233 requires the deduction of tax and all other sections relates to the collection of tax.
It is proposed that for removing this inconsistency and for symmetry and uniformity the two sections referred above may be shifted to their appropriate places ie section 148 may be put in place of section 233 and vice versa.
As said earlier it is simplified and authenticated way to use the term which is already defined and than exclude or add what is not covered or required to be excluded, as compared to creating definitions under each section.
There might be certain potent reasons in the minds of legislature, as amendments/additions and deletions are made at regular intervals in this section.
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CHAPTER XII
Transitional Advance Tax Provisions
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233 Brokerage and commission Where any payment on account brokerage or commission is made
by the Federal Government, a provincial Government, a local
authority, a company or an association of person--- ------
the principle shall deduct advance tax_____
233-A Collection of tax by a stock A stock exchange registered in Pakistan shall collect
exchange registered advance tax.......
in Pakistan
234 Transport business Any person at the time of collecting motor vehicle tax shall
also collect advance tax ----------
235 Electricity consumption (1) There shall be collected advance tax at the rates specified in
Part-IV of the First schedule on the amount of electricity bill of
commercial or industrial consumer.
(2) The person preparing electricity consumption bill shall charge
advance tax under sub-section (1) in the manner electricity
consumption charges are charged.
236 Telephone users (1) Advance Tax at the rates specified in Part-IV of the First
Schedule shall be collected on the amount of a) telephone bill of
a subscriber; and
b) prepaid cards for telephones
(2) The person preparing the telephone bill shall charge advance
tax under sub section (1), in the manner telephone charges
are charged.
3) The person issuing or selling prepaid cards for telephones shall
collect advance tax under sub-section (1) at the time of issuance
or sale of cards.
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