Tax reforms: Commission to consider single-stage sales tax

Will also study abolition of fixed income tax and other measures


Shahbaz Rana December 17, 2014

ISLAMABAD:


In order to restructure the virtually dysfunctional tax system, Tax Reforms Commission (TRC) Chairman Masood Naqvi has said options like abolition of the fixed income tax and introduction of a single-stage sales tax will be considered along with other remedial measures.


He said they suspected that the present income tax system of the Federal Board of Revenue (FBR) was not delivering results.

Naqvi was speaking after the TRC meeting in which tax authorities presented the current state of affairs and available options to restructure the system.



He said the withholding tax, presumptive tax and final tax regimes would be reviewed and there was a possibility that the commission may recommend to gradually abolish the fixed tax system. Even if the suggestion faced opposition, the government should consider it, he remarked.

Only 8% of income tax was collected due to the efforts put up by the FBR and the remaining collection was done by various agents, said Naqvi while highlighting the growing reliance of the FBR on other forces to collect taxes.

“We have not yet made our minds and will holistically review the present system before recommending anything to the government.”



TRC has been established in a bid to review the tax system and suggest remedial measures within three months.

However, the commission chairman made it clear that the timeframe was not realistic and they would require more time to firm up meaningful recommendations.

The FBR is no more in favour of the present system where responsibilities are divided among various wings, contrary to the circle-based system that the board abandoned a decade ago in the name of reforms.

“The present system would have been successful, had there been a strong backing of information technology,” said Naqvi. In a fractured system, he added, no regime could deliver results. A stringent enforcement of existing laws could give better results.

Highlighting the challenges, representatives of the FBR underlined the need for more frequent audits, more accurate tracking of withholding tax deduction and withdrawal of amnesty.

They pointed out that under-reporting was a bigger challenge than non-filing and taxing the undocumented sectors, for instance retailers, was also a major issue.

Commenting on sales tax issues, Naqvi said a single-stage sales tax was one of the available options but it was not the only choice. “The impact of single-stage sales tax on documentation would be an important consideration before taking any decision.”

He said a mix of single-stage tax where refunds were not allowed and the present VAT mode sales tax could also be considered to address the issues in the sales tax regime.

Fake and flying invoices, excessive input tax adjustments and undue refunds were still the major challenges of the sales tax regime, according to FBR Inland Revenue Member Operations Ashraf Khan.

He also pointed to an undocumented economy, tax evasion, incomplete chain of registration, resistance from retailers and multiple rates as other challenges.

Published in The Express Tribune, December 17th, 2014.

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