ISLAMABAD: The Federal Board of Revenue (FBR) has criticised its policy of withholding tax deduction on mobile cards, etc, affecting people/low-income groups who are below the income tax bracket.

The FBR’s latest report (Stakeholder Engagement Plan) issued under the World Bank-funded Pakistan Raises Revenue Project (PRRP) revealed that for companies other than trusts, NGOs and funds withholding tax serve as a tool for documentation of the economy and cutting down on withholding tax streams should not be at the expense of gathering data of taxpayers. 90 percent of tax collection today is from withholding tax, the report said.

However, it also creates problems for businesses and in particular small organisations, which are forced to serve as withholding tax agents and dedicate resources to this effort. Salaried employees have withholding tax deducted from the source of their salaries.

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Withholding tax is also deducted on mobile cards etc and it affects people who do not fall in the income tax bracket and puts undue pressure on their meager income. This needs to be reviewed carefully to reduce undue pressure on low-income groups.

The report said that the FBR cannot work in isolation, and their work is contingent on cooperation and support from other agencies such as the Excise and Taxation Department, the NADRA, the CDA, etc. There is a need to streamline the systems to engage in seamless data sharing (among different entities). Enforcement, presence, and outreach are critical issues.

The FBR should follow through on policies and not change them frequently and be consistent about enforcement. Broadening of the tax base is one of the objectives of the PRRP, as the FBR is not achieving results with the current system.

The phrase “broadening the tax base” is often used in Pakistan in the context of an extremely narrow base of income tax and refers to the idea of spreading it out over all potential sources. It would be more productive and would add value if the BTB function is based on territorial jurisdiction for collecting new cases and increasing the tax net.

At present, there is a lack of clarity and ownership. Due diligence and procedure are required for taxpayer mapping and field surveys to identify potential taxpayers before bringing them into the tax net.

In terms of the work process structure, initially, there was a circle-based system, under which, each circle was responsible for closely monitoring the performance of all taxpayers falling within its territorial jurisdiction.

The officer in-charge was entrusted with all the responsibilities of maintenance of records, receipt, and enforcement of income tax returns/statements, conducting audit and assessment, recovery of taxes, filing of appeals at various appellate fora, issuance of refunds, and assisting the commissioner in the issuance of exemption certificates.

Since all the work was the responsibility of one person, there was a unity of command, a better understanding of issues, and a sense of ownership among the tax officials.

In 2000, it became function-based, in which there was a lack of ownership and officers did not know anything outside their function. The system has now introduced a “composite system” broadly similar to the comprising work units, the jurisdiction of which is by and large based on “territorial” specifications, and the work is entrusted to one person.

Hence, the IRS is organised along tax instruments, territorial jurisdictions, and taxpayer segments (e.g. Large Taxpayer Offices) rather than functions, for instance, taxpayer registration, assessment, and tax audit. This aspect of the organisation may be explored further through consultations as it has implications for the efficiency of work processes and would impact the reform agenda of the project.

The FBR has been integrated with the NADRA and the SECP, in particular, about registration of taxpayers and the ease of doing business.

Under the One Window Operations Policy, people can obtain their NTN from the SECP, the FBR report added.

Copyright Business Recorder, 2023