LAHORE: About half of the tax generated from withholding regime remains unclaimed, and still almost 90 percent of claimed excess deductions are never refunded, said the Federal Board of Revenue (FBR) sources.
During the Tax Years 2012 to 2016, the total withholding tax on mobile phone cards, cash withdrawals, vehicle registration, token tax renewal, auction of property, sale of immovable property, purchase of immovable property, marriage halls, and educational institutions was to the tune of Rs451.6 billion, out of which only Rs101.9 billion (22.6 percent) could be claimed while remaining 77.4 percent remained unclaimed.
The FBR makes both Collection At Source (CAS) and Deduction At Source (DAS) under the withholding tax regime and both CAS and DAS are reached to an abnormal level in terms of percentage. The Tax Reforms Commission 2016 had observed that the FBR was collecting 95 percent taxes by imposing more and more tax obligations on organisations and individuals in the form of withholding tax provisions. The Commission had further pointed out that the FBR has reduced the tax base rather than realistically expanding it besides eroding the administrative efficiency as against improving it.
According to the departmental sources, there were as many as 126,472 withholding agents in 2017, as the Board has imposed withholding tax on 182 transactions and 42 types of incomes. A withholding agent is bound to pay the tax within seven days collected on behalf of the department. Even the Inland Revenue Service has transferred a major portion of its responsibilities of collecting tax on withholding tax agents leaving very little to justify its own existence, they added.
Sources said the banking sector had paid a total tax of Rs140 billion in 2016, out of which Rs134 billion was withholding tax.
According to the sources, the system is generating under 10 percent of GDP in tax revenue and the state has to compulsively borrow roughly the same amount every year to sustain itself with all the adverse fallouts for the economy and its long term sustainability.
Due to overemphasis on withholding taxes, said sources, the taxpayers conceal their actual transactions and do business through multiple names. They keep the lower threshold to avoid coming into the ambit of withholding provisions (which are now 58 in number!). Similarly, there are over 70 withholding tax provisions contained in the Income Tax Ordinance, 2001, Sales Tax Act, 1990, and all provincial laws relating to sales tax on services.
However, the proponents of the system are of the view that the tax system in Pakistan is by and large inequitable and violate the dictates of horizontal and vertical equity, while horizontal equity is violated because agricultural income and service activities are inadequately taxed or escape taxation altogether. Similarly, vertical equity was also compromised because direct taxes contribute no more than 2.7 percent to the GDP, and this despite the fact that the introduction of withholding and presumptive taxes has dramatically increased the tax ration to 23 percent or so. They noted that the extension of withholding regime had substantially curtailed the oft-spoken discretion of the assessing officers and brought to an end the complaints about discretion in the matter of assessments while making tax collection easy and bringing and end to departmental malpractices.
Copyright Business Recorder, 2020