FBR to simplify tax regime to broaden tax base

Proposes to offer educational institutions, jewellers, SMEs, builders to pay lower than standard tax rates

ISLAMABAD: The tax authorities have proposed simplified income tax regimes for educational institutions, jewellers, small-sized firms and builders in the new budget and may offer them to pay lower than standard income tax rates aimed at bringing them into the tax system.

At least four new schedules may be introduced in the Income Tax Ordinance 2001 through Finance Bill 2019, according to sources in the Federal Board of Revenue (FBR).

The purpose of making business and professional specific special tax regimes is said to be helping them comply with the law and also pay at least some taxes as against almost nil contributions, they added.

“The government is actively discussing the special tax regimes for educational institutions, hospitals, beauty parlours, small and medium enterprises (SMEs), builders, developers and jewellers,” said FBR Chairman Shabbar Zaidi while talking to The Express Tribune.

Zaidi said the purpose of the budget proposal is to facilitate these businesses and professionals in doing their business and at the same time bringing them into the tax system.

The government may propose lower than standard income tax rates for all these sectors with an incentive to pay even less tax in terms of percentage by claiming less expenses in their income tax returns.

At present the corporate and individual income tax rate is 29% and the government has a plan to increase the individuals’ rates to 35%. These sectors and professions may be asked to pay only one kind of tax and could be exempted from the sales tax and federal excise duty.

There are nearly two million people and companies that have filed their annual income tax returns for the last year. But due to almost 12-dozen types of withholding taxes, more than 50 million people in Pakistan pay taxes –a factor that has been ignored in public discourse.

In order to give a boost to the housing sector, the government also wants to introduce a special tax regime for the builders and the developers. These people hardly contribute anything to the exchequer and their tax payments are going down over the years.

There are already nine special schedules in the Income Tax Ordinance of 2001 –a figure that may jump to at least 13 after presentation of budget on June 11 for fiscal year 2019-20.

In January this year, Zaidi, in his capacity as member of the government’s Tax Reforms Implementation Committee, had proposed the special taxation regime for the SME sector. But at that time the FBR had given him a cold shoulder.

The TRIC had suggested a 20% income tax rate for the SME sector but then the tax machinery had reservations over creating another special regime and its implications for revenues in the short term.

The SME has been defined as a firm that has a turnover of less than Rs60 million, the capital not more than Rs50 million, the cost of fixed assets not more than Rs50 million and the number of employees not more than 50 persons.

It had also been proposed that the provisions of Sales Tax Act, 1990 and Federal Excises Act, 2005 should not apply to persons whose income is chargeable to tax under the new SME regime.

Any supplies made by any person falling under the proposed regime may also not be subject to any payment of sales tax under Sales Tax Act, 1990 or Duty under the Federal Excise Act, 2005.

The persons voluntarily filing under this new regime would also not be required to explain the source of capital for any earlier year, according to the then proposal.

The educational institutions and hospitals also grossly understate their incomes. The jewelers have also lately come on the government’s radar after the Financial Action Task Force (FATF) placed Pakistan on a list of countries whose anti money laundering and counter terrorism financing regimes are not compliant with the global standards.

The government has also asked the banks to provide the details of Benami accountholders and non-registered accounts to the tax authorities.

The FBR has requested the SBP to arrange CNIC numbers for bank accountholders on whose behalf banks have deducted applicable withholding taxes during the financial year ending on June 30, 2019, according to a communique between the FBR and the central bank.