Karachi, October 25, 2024 – The Federal Board of Revenue (FBR) has implemented a significant measure to collect advance income tax from individuals and businesses registered for provincial sales tax.
Under the authority granted by Section 147A of the Income Tax Ordinance, 2001, this advance tax targets individuals registered with provincial revenue authorities, aligning with FBR’s broader strategy to increase compliance and broaden the tax base.
As outlined by the FBR, provincial sales tax registrants are now required to pay a monthly adjustable advance income tax at a rate of three percent of their declared turnover. This advance tax is intended to coincide with the monthly sales tax return filings, ensuring streamlined compliance across both tax obligations. Those fulfilling these requirements will later be able to utilize the paid amount as a tax credit to offset their income tax liabilities, potentially minimizing their final tax dues.
The FBR has clarified that this advance tax payment will be integrated into the overall advance tax calculation process, as specified under Section 147 of the Income Tax Ordinance. This means that all provisions applicable to advance tax payments under regular assessment procedures will similarly apply to this new tax on provincial sales tax registrants.
One of the advantageous aspects of this provision is the tax credit mechanism for the taxpayers. Taxpayers who have paid the advance income tax will be granted tax credits against their taxable income for the year. If any portion of this credit remains unused after being applied to the taxpayer’s liability, it will be eligible for a refund under Section 170 of the Ordinance, effectively allowing taxpayers to reclaim excess payments, thereby alleviating potential financial strain.
Additionally, the FBR has issued a safeguard to avoid duplicate taxation efforts. Taxpayers whose names appear on the Active Taxpayers’ List (ATL) as of June 30 of the preceding tax year are exempt from this advance tax. This condition aims to reward compliance and prevent redundancies within the tax system, incentivizing taxpayers to maintain active compliance to secure future exemptions.
The introduction of this tax marks a notable shift in FBR’s approach to advance tax collection, leveraging provincial registration as a gateway to income tax compliance. By capturing a larger spectrum of sales tax registrants, the FBR hopes to strengthen its revenue base while incentivizing taxpayers to proactively manage their tax obligations. As compliance continues to expand, the FBR anticipates a bolstered fiscal environment with smoother interprovincial tax integration.