Phasing out presumptive taxes: Tax rates may jump by 20% to 100%

It will discourage businessmen, who may opt for the normal tax regime.


Our Correspondent May 02, 2012

ISLAMABAD: Income tax rates are likely to be increased in the range of 20% to 100% for people currently availing of presumptive tax regime in a bid to discourage the use of the special facility that basically allows the very rich not to file income tax returns while paying a nominal tax.

For those who will opt for the normal tax regime and abandon the presumptive tax regime, the tax rates will be lowered by 40% to 50% as an incentive, said sources in the Federal Board of Revenue (FBR).

The move is not against the government’s decision of not increasing the tax rates, as it is meant to broaden the tax base by encouraging the filing of income tax returns.

According to a proposal, the fixed tax rate on import of goods may be increased to 6% from 5% for businesses that decide to remain in the presumptive tax regime – a special window where taxmen cannot question the value of the consignment or tax paid by any particular exporter on any consignment after the taxpayer pays the tax at a fixed rate.

But those who decide to accept the government’s offer to file income tax returns, the tax rate will be 3% for a fixed period as against the existing rate of 5%, said the sources.

The rate of presumptive tax for an importer of goods is 5% of the value of goods while for a supplier of goods the rate is 3.5% of the value of supplies. The proposal suggests an increase in the tax rate for exporters from 1% to 2% of the value of sale proceeds. Those who abandon the special regime would have to pay a 0.5% tax.

Sources said the government wants to completely phase out the presumptive tax regime in three years and will increase the presumptive tax rates gradually over this period to make the scheme unattractive for businesses vis-a-vis normal tax regime.

The government expects that the revenue impact of the scheme will not be significant, as it is not expecting a major shift from the presumptive to the normal regime in the first year.

A former FBR member, who retired recently, said the FBR should declare presumptive taxes as adjustable in the first phase, adding, however, the tax officials fear that the businessmen may exploit it by claiming back the entire amount or major chunks after bribing the taxmen.

Tax reforms have been long overdue and the government has remained unable to implement them due to vested interests. The reforms, particularly rationalisation of tariffs which have provided undue protection to the domestic industry at the expense of consumers, were also debated fiercely in a meeting of the Tax Reforms Coordination Group held the other day.

In the meeting, sources said, Planning Commission Deputy Chairman Dr Nadeemul Haque criticised the FBR and so-called independent members of the group for their failure to introduce even a single reform.

The Tax Reforms Coordination Group members mainly comprise former FBR officials and some economists and businessmen that have allegedly been using their positions for personal gains.

Some private sector members of the group, hailing from Karachi whose businesses have presence in Islamabad, use official cars, particularly of a federal minister, when they visit Islamabad. These members were criticised in the tax reform group meeting held on Tuesday for their inability to ensure reforms.

Published in The Express Tribune, May 3rd, 2012.

COMMENTS (2)

Kayell | 11 years ago | Reply

Pakistan is probably the only country in the world to have a presumptive tax regime which should be immediately done away with immediately. The presumptive regime has caused billions in revenue loss to government and it is high time they should realise this.

H.A. Khan | 11 years ago | Reply

The sad fact is FBR has become dysfunctional and the officers of FBR working in field are only interested in personal gain and not public good.

Just go and visit and RTO in Karachi and then visit LTU in Karachi you will find the difference.LTU Karachi is an efficient,professional and by the book unit where tax payer is treated respectfully and if you go to RTO in Karachi you are treated like a commodity

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