The federal government seems to be relying on traditional methods of enhancing revenues and is likely to increase the tax rate on withdrawal of cash from banks by 66% to 0.5% of the amount for persons who do not file income tax returns.
Sources in the Ministry of Finance said the proposal was cleared by Finance Minister Ishaq Dar on Wednesday evening. The Federal Board of Revenue (FBR) had proposed an increase of 100% to 0.6%, but Dar was in favour of 0.5%.
The proposal could be part of tax measures that economic managers will present to Prime Minister Nawaz Sharif for approval before presenting them to parliament.
According to sources, if the premier approves the proposal, it will be one of the biggest revenue spinners for next fiscal year 2014-15, beginning July. The FBR aims to collect roughly 3% of total income tax next year by increasing the levy on cash withdrawal.
They added there was a possibility that the government would issue a notification for implementation of the proposal from June 3, the day it presents the budget.
At present, the government charges 0.3% withholding tax on drawing Rs50,000 or more from banks, irrespective of whether an account holder is a taxpayer or not.
However, the taxpayer has the right to claim refund once he files income tax return. But it is very rare that people claim the refund.
According to sources, people who file their income tax return will still be paying 0.3% withholding tax, underscoring that the government wants to use it as a revenue spinner and does not seem to be in a mood to withdraw the levy from those who are tax-compliant.
While presenting its first budget in June last year, the PML-N government had increased the rate from 0.2% to 0.3%. At the rate of 0.2%, the FBR had received Rs12.5 billion in fiscal year 2012-13. After increasing it to 0.3%, it collected Rs4 billion in the first quarter (July-September) of the current fiscal year, an increase of 60% over the same period of previous year.
Sources said a mechanism to make a distinction between tax-compliant and non-compliant customers would have to be worked out by the FBR and banks. There is a possibility that banks will be provided a list of compliant taxpayers.
The exact estimate of tax collection under this head is difficult to make but the FBR expects to receive Rs25 to Rs30 billion in the next fiscal year.
Like its predecessor, the PML-N government is struggling to find out-of-box solutions and is relying on traditional methods of widening the tax base.
For the next fiscal year, it is going to give an over-ambitious tax target of Rs2.810 trillion to the FBR that the tax machinery insists is very steep, requiring 23.5% growth over the current year’s anticipated collection.
Sources pointed out that in order to achieve the target the government would have to rely on conventional means.
In last year’s budget, the government passed a law, getting permission to access individual bank accounts. However, it retreated after the business community, particularly from Punjab, strongly protested against the move.
Later, it amended rules and limited access to only those accounts that were owned by people not registered with the FBR. This move also backfired and a provincial court granted a stay order.
Sources said the finance minister was of the view that the people who did not file income tax returns despite numerous extensions would have to pay the price in the next fiscal year.
Published in The Express Tribune, May 23rd, 2014.
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