The Tax Reform Commission (TRC) has recommended to the Federal Board of Revenue (FBR) to introduce the concept of 'higher income contribution' whereby individual and Association of Persons earning taxable income of more than Rs 100 million and in case of corporate taxpayers earning taxable income of more than Rs 200 million should be liable to surcharge. There should be a sunset time limit for this enactment of three years.
According to the final recommendations of the TRC, to broaden the tax base and to bring the retail sector in tax compliant sector, a Ninth Schedule needs to be introduced in the Income Tax Ordinance 2001 in the Finance Act 2015 in respect of the taxpayers engaged in retail businesses. It recommended that immunity from audit for the period of three years should be provided in respect of the taxpayer falling under the proposed Ninth Schedule.
Tax rates should be prescribed in the Finance Act 2015 in respect of the Land Developers and Builders provided under section 113A and 113B of the Income Tax Ordinance 2001. The TRC expressed concern as to why the tax rates for these two sections have not been prescribed by the FBR/government since past two years, it said.
The threshold of paid-up capital and undistributed reserves in respect of the Small Company should be enhanced to Rs 50 million. It recommended that the corporate tax rates should be brought down to 30 percent till 2018 and in case of listed companies other than those on which separate schedules are applicable [Banks, Insurance and Oil and Gas companies] reduction of two percent is considered as a differential.
The laws relating to Workers Profit Participation Fund and Workers Welfare Fund should be amended to enable the companies to utilise at least proportion of their contribution towards the welfare, education and housing for the workers of such companies, it said. TRC recommended that the minimum threshold for tax withholding for services and supplies which were fixed in 1990s at Rs 10,000 and Rs 50,000 should be increased to Rs 25,000 and Rs 100,000, respectively where both the deductor and deductees are on ATL
Federal government in co-ordination with provincial governments should design the valuation mechanism for immovable properties in various categories. The value needs to be revised at a level every year through independent valuers. The value so determined should be at minimum 75 percent of the current market value. Immovable property is a sector where significant amount of untaxed money is parked especially due to the difference in fair market value and the collector rate fixed for the properties which in most cases is less than 25 percent of the fair market value, it said.
A new provision needs to be inserted imposing tax at the rate of 15 percent in respect of the class of taxpayer who own property outside Pakistan for which valid declaration has not been made in the wealth statement by the taxpayer. The TRC recommended that special Provision aligned with OECD guidelines in respect of Transfer Pricing needs to be introduced which will empower the officer of Inland Revenue to properly probe the transactions with associates.
Immunity on account of probing against unexplained Inward Remittances needs to be restricted, it said. It recommended that a tool box of measures needs to be initiated to significantly reduce the outflow of un-taxed funds Gradual phasing out of FTR should be initiated; as a first step the Commercial importers and Commission agent should be phased out of FTR and they should be obliged to file the accounts along with their return of total income.
Harmonisation of tax rates in respect of the Salaried Individual and other than salaried individual and AoP. The existing slabs needs to be revisited and the maximum rate of tax should be brought down to 25 percent. All the person generating income in all categories should get themselves registered and obtain their NTN with tax authorities. FBR should ensure that all the NTN holders should file their tax returns along with the wealth statement.
Bonus Shares shall be excluded from the definition of income or the rate of taxation should be 1 percent, it recommended. The TRC recommended that the definition of prize needs to be inserted in section 156 of the Income Tax Ordinance 2001 as this has led to a lot of litigation and is a serious cause of concern to the formal sector. The minimum threshold for the income to be taxable under Income Tax Ordinance 2001, considering the inflation should be revised to Rs 500,000 for the Tax Year 2015.
Issuance of prize bond of Rs 25,000 or Rs 40,000 needs to be discontinued as these high denomination bearer instruments fuel corruption and tax evasion. Prize bonds of these denominations should be allowed to be deposited in Bank Accounts till 31 December 2015 with a tax withholding of 0.1 percent. Tax so deducted on the prize bonds should be made adjustable and the evidence of tax deduction will suffice the purpose of documentation.
After an appropriate date to be decided by federal government, the said prize bonds can be deposited in the Bank Accounts within a fixed time of four months with tax deduction of 10 percent and the tax so deducted will be adjustable tax. The government should publicise these measures extensively. In case of all other prize bonds government should encourage purchase and redemption through bank accounts and any cash withdrawal should attract the tax applicable to cash withdrawal, it said.
A new provision is proposed to be inserted in the seventh schedule whereby banks are required to submit the information of taxpayers to the Federal Board of Revenue in terms of name of the taxpayer, NTN/CNIC no, amount on which tax is deducted and amount of tax, it recommended.
The income generated by the banking companies in respect of investment made in excess of the minimum liquidity reserve under section 29 of the Banking Companies Ordinance 1962 in PIB and T-bills shall be subject to 'high income contribution'. The rate of surcharge should be 15 percent on interest earned on such excess investment. Alternate Dispute Resolution (ADR) process should be reactivated with modifications and made final for taxpayers as well as for the department
It recommended that the ADR process should be under the Federal Tax Ombudsman operating under Federal Tax Ombudsman Ordinance 2000 (FTO 2000) Section 33 of the FTO 2000 empowers the FTO to resolve informally conciliate, amicably resolve, stipulate, settle or ameliorate any grievance of a tax payer and Customs and Tax laws. This is preferred option. The alternate being ADR established under the provisions of existing tax laws with some modifications to provide it authority, indemnity and independence. Advance Ruling Mechanism should be extended to the resident persons and be independent to FBR.