ISLAMABAD: The tax authorities are working on major reforms in personal income tax to be introduced through budget 2021/2022.
According to sources in the ministry of finance a three-year medium term strategy paper had been drafted.
Following policy measures are considered under the three year plan:
FBR aims at re-designing the tax system on ideal principles of taxation, which, inter alia, includes moving towards taxation of net profits under income tax and subjecting all taxable supplies to a standard sales tax regime. The initiative involves removal of tax distortions, unnecessary exemptions, tax reductions, zero rating etc. Major guiding principles of tax policy include:
a. Corporate income tax reforms-removal of undesirable tax credits, accelerated depreciation, exemptions, reduced rates, exemption from specific provisions etc. This aspect has already been completed by promulgation of Tax Laws (Second Amendment) Ordinance, 2021.
b. Personal Income Tax Reforms-removal of unnecessary exemptions and rationalization of tax rates and reduction of tax slabs.
c. Reducing dependence on withholding taxes-FBR is contemplating reduction in number of withholding tax lines without compromising the documentation purposes of these taxes. Nine withholding taxes have already been abolished and further reduction is under consideration.
d. Rationalization of minimum taxes – The ideal principles of taxation envisage simple, low rate and broad based taxation structure. In order to achieve this goal, FBR is rationalizing presumptive and minimum tax regimes.
e. Removal of anomalies in taxation–The present taxation structure is complicated and presents anomalous situation for various tax payers, which are required to be removed.
f. General Sales Tax on goods-This involves removal of unnecessary exemptions, reduced rates, zero rating and special tax regimes. The broad guideline is that exemptions and concessions available to all goods except essential food items, health and education related goods are to be reviewed.
g. Sales tax harmonization – FBR is pursuing sales tax harmonization with the provincial revenue authorities, which includes common definition of goods and services, common minimum threshold, harmonized tax rates, single portal and single sales tax return. The initiative is expected to complete in the medium term.
h. Promotion of ease of doing business – FBR is aiming at reducing difficulties of taxpayers. CNIC is being made as unique identifier for all taxes administered by FBR. Further, valuation table for immovable properties are being harmonized with provinces.
