FBR blasted for failure to improve tax compliance

SBP deputy governor says tax policies hurting banks, eroding deposit base

ISLAMABAD: State Bank of Pakistan Acting Governor Saeed Ahmad on Saturday blasted tax authorities for their failure to improve tax compliance and said that the policies were hurting the banking industry.

While addressing a pre-budget seminar, Ahmad said that the biggest concern of the central bank was erosion of deposit base due to imposition of withholding tax (WHT) on banking transactions of over Rs50,000 in a day by non-filers of income tax returns. The government imposed 0.6% withholding tax from July.

Later on, it reduced the tax rate to 0.3% that it eventually increased to 0.4% some months back.

The levy, he said, was undermining the central bank’s efforts to promote national financial inclusion, which remains very low.

The pretext behind the WHT and other higher tax rates for non-filers was to pressure non-filers to come into the tax net. Given the filers could potentially seek WHT refunds that non-filers could not, the FBR put in place a differential tax policy at multiple levels. However, the differential tax policy has only contributed to further reduce the number of filers.

The deputy governor also demanded that the income tax rate for the banking industry (35%) should be brought down to 32%, at par with corporate income tax rate.

The government, on the other hand, has insisted that banks were making easy money and therefore, they should pay extra.

“Feeling of mistrust is keeping people away from paying taxes as they have concern that their money is not transparently used,” said Ahmad while highlighting reasons behind low tax base.

“Filing an income tax return is a nightmare in this country.”

“It takes 20 minutes to file an income tax return with UK tax authorities but when it comes to Pakistan, I have to seek assistance of two accountants,” added Ahmad.

He further said the FBR’s information technology system was not properly functioning and often crashed. The IT  wing was probably the most neglected unit of the FBR. The chairman FBR has assigned the charge of Member IT to a grade 20 officer who is also holding the charge of Member Strategic Planning, Reform and Statistic.

Published in The Express Tribune, April 24^th, 2016.

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