ISLAMABAD: In a bid to boost the weakening realty and automobile sectors, the government may lift a seven-month-old restriction on including names of those people in the Active Taxpayers List (ATL) who file income tax returns after the statutory deadline.
The ban had been imposed to force people to file annual income tax returns within the due date or else they will be deprived of the benefits available to those whose names appear in the ATL.
The low number of return filers for tax year 2018 – only 1.5 million – is the other key reason behind considering the proposal, said sources in the Federal Board of Revenue (FBR).
The government has also identified over one-and-a-half dozen withholding taxes that it wants to either abolish or reduce their rates aimed at facilitating the business community. These proposals are being considered for the second mini-budget of the current fiscal year that Finance Minister Asad Umar will unveil on January 23.
A majority of these taxes do not yield significant revenues but have affected businesses and increased the cost of compliance for the people, according to FBR sources. The 0.6% advance tax on banking transactions is the only major tax that yields significant revenue but has equally affected banking deposits.
The officials said Umar wanted to withdraw the majority of these 18 types of withholding taxes but the FBR wanted to take a gradual approach by reducing their rates in the first phase. The previous Pakistan Muslim League-Nawaz (PML-N) government had expanded the withholding tax regime to force people to come into the tax net.
Sources said the finance ministry was considering a proposal to amend the Income Tax Ordinance 2001 in order to withdraw the restriction on inclusion in the ATL of taxpayer names who file returns after the last date. In its last budget, the PML-N government had introduced the embargo.
For tax year 2017, about 1.733 million taxpayers are on the ATL and 15% of them have not filed returns for 2018. According to the Income Tax Rules, the ATL will be published on March 1, 2019. In case, the government does not lift the ban, the new ATL will comprise only 1.5 million people. Officials said the ban had also impacted the real estate and automobile sectors, which could not engage into deals with non-filers of tax returns.
Those who are not on the ATL cannot buy new cars and properties valuing over Rs5 million. They will also have to pay a higher income tax on every transaction including 0.6% withholding tax on banking transactions.
Every person who has annual income of more than Rs400,000, owns an immovable property of a minimum of 200-250 square yards, owns a flat and a car of above 1,000cc and has obtained the National Tax Number is liable to file the income tax return. Under the law, September 30 is the last date for filing the tax returns.
The ban has also affected FBR revenues. Tax collection on the registration of vehicles grew only 2% in first five months of the current fiscal year, said the officials. Similarly, the withholding tax collection on property sales remained stagnant while on property purchase it dipped 13%, the sources said.
Withholding tax collection under Section 236W, which deals with the realty sector amnesty, dipped 34% in first five months of the current fiscal year, according to the sources.
The government is also trying to reduce the number of withholding taxes which do not generate sufficient resources or are considered obstacles in the way of banking business. There are nearly 18 types of withholding taxes out of over 70 that the government wants to withdraw within six months.
Majority of those that generate only nominal revenues could be withdrawn next week, said the sources. However, the FBR is of the view that the government should adopt a gradual approach as a sudden withdrawal may adversely hit its revenues.
For instance, the revenue loss on account of 0.6% withholding tax on banking transactions will be Rs32 billion annually. The FBR wanted that in the first phase, the government should halve the rate, said the sources.
Published in The Express Tribune, January 15th, 2019.