Withholding tax saga: Govt comes one step forward in negotiation

Offers amnesty scheme to traders; will not audit their income tax returns for 3 years.

ISLAMABAD:

In an effort to pacify the vocal trader community, the government on Friday offered a three-year amnesty scheme that would, in a way, address its concerns over the consequences of declaring hidden assets in income tax return forms.

Negotiations between the government and traders have reached a standstill over the withholding tax issue, levied on all banking transactions over Rs50,000 and charged from non-filers. The government, in the budget 2015-16, imposed a 0.6% levy on those who do not file income tax returns and conduct any transaction over the threshold in a single day. The collection was to be made by banks on behalf of the government.

However, after vocal protests, mainly registered by traders, the government decreased the levy to 0.3% and set September 1 as the deadline to file income tax returns. After initially agreeing to the arrangement, traders - reported to be backed by political groups - rejected their earlier stance and demanded a complete withdrawal of the tax. Currently, over 80% traders are non-filers and those who file returns grossly understate their sales, incomes and assets.

With August 1 set as the traders’ day for registering a shutter-down strike, the government - that had earlier rejected demands - seemed to have come one step forward in the negotiation.

As traders muster political support for the strike call, the government said that it is ready to charge a fixed income tax rate - which would be a small amount - from traders. Additionally, income tax returns - the thorny issue in the way of talks between the two groups - filed by traders would be exempted from audit for a period of three years, said Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Idrees.

Idrees was addressing the media at the Federal Board of Revenue (FBR) headquarter after negotiating with Finance Minister Ishaq Dar.

Idrees said that income tax returns filed by traders would not be subject to the computerised balloting process, which randomly selects a form to be audited, for the next three years. However, the traders will have to pay at least 25% additional tax annually for the next three years, said Idrees while sharing details of the amnesty offer.

To give legal cover to the amnesty scheme, which will be finalised before August 14, the government will issue a Presidential Ordinance, said Idrees. It will be the second such ordinance. Earlier, the government had issued an Ordinance to reduce the rate of withholding tax on all banking transactions from 0.6% to 0.3%.

Traders’ body distances itself

However, Naeem Mir, the secretary general of All Pakistan Anjuman Tajran (APAT), disassociated his body from any arrangement with the government and vowed to observe the strike.

Meanwhile, in addition to the 0.3% levy, the government is also set to approve a series of laws, which will tighten the noose around those who evade taxes or hide their assets in benami accounts. A benami account bill will soon be presented to the parliament that would bar such bank accounts.

Additionally, the government is also trying to convince political parties to support its move to declare ‘Rs1-million and above tax evasion’ as a “predicate offence”, which would be dealt under the Anti-Money Laundering Act of 2010.

What traders say

Traders have shown apprehensions that the FBR would start questioning the source of income and their assets, particularly the paid-up capital, which they cannot justify, once they come under the tax net by filing income tax returns. They sought an amnesty scheme besides seeking a fixed income tax rate aimed at avoiding the complexities of the country’s outdated tax system.

The government was earlier reluctant to accept the amnesty demand due to the anticipated opposition by the International Monetary Fund.

Pakistan is currently in negotiations with the IMF in Dubai under the eighth review of the $6.6-billion bailout programme that would decide if the country receives the next loan tranche.

On the other hand, a FBR official said the incentive package to would not be dubbed as an amnesty scheme to avoid the IMF’s wrath.

“The government is stuck between a rock and a hard place,” he added. “If it rejects the amnesty offer, the traders will not come in the tax net and if it announces the amnesty scheme, the IMF will create problems,” said the official while seeking anonymity.

Published in The Express Tribune, August 1^st, 2015.

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