The vulnerable groups including pensioners, widows, students, retired persons and all those falling below taxable limit have to pay high rates of withholding taxes being covered under the category of non-filers. Tax experts told Business Recorder here on Monday that at present there is no income tax on annual income earned up to Rs 400,000 for an individual.
As a result, any person earning income to the extent of Rs 400,000 is not liable to pay a single penny to the government. On the other hand, such persons are paying higher rates of taxes to the government due to faculty legislation enacted in the law for non-filers.
It is a major policy flaw to consider pensioners, widows, students and retired persons, falling below taxable limit, as non-filers for the purpose of withholding taxes. The question arises why a person having no taxable income has been forced to pay higher advance income tax or file income tax return/statement?
The Federal Board of Revenue (FBR) has no system to distinguish between those falling below annual taxable limit of Rs 400,000 and non-filers above taxable threshold for the purpose of withholding tax. This resulted in imposition of higher rates of withholding taxes on persons having below annual taxable limit and carrying out banking transactions.
The issue is mainly related to the advance tax on banking transactions other than through cash under section 236P of the Income Tax Ordinance. The low income groups such as widows, pensioners, retirees and students, etc, fall below taxable threshold, therefore, are not liable to pay tax. Most of these groups remained non-filer during their life because of their particular circumstances, but withholding tax is deducted on their savings whenever they make withdrawals, which is unfair as they cannot claim credit for the deducted amount. Therefore, the section 236P should be exempted for these vulnerable groups and the threshold of transfer/transactions should be increased to Rs 100,000 as compared to current threshold of Rs 50,000.
They said that millions of persons are paying advance income tax but are not filing returns/statements as they have no taxable income. Citing an example, they said that hundreds and thousands of students pay income tax on the use of cellular phones out of funds already taxed by their parents. The government should first remove numerous withholding provisions and then get returns from all those who have taxable incomes. Such unjustified withholding tax provisions are creating hardship for millions of students, widows, minors, men and women having no taxable income.
Another tax expert said that vulnerable groups, including widows, pensioners, retirees, students... receive very low compensation/income that falls below taxable threshold; therefore, they are not liable to pay tax. However, withholding tax is deducted on their savings whenever they make withdrawals, which is unfair as they cannot claim credit for the deducted amount.