PBC suggests measures for broadening tax base by enhancing withholding tax rates on non-filers, unregistered persons

KARACHI: Pakistan Business Council (PBC) has suggested measures for broadening tax base through enhancing withholding tax rates on non-filers and unregistered persons in various sectors.
The PBC – the advisory council of large corporate entities – in its budget proposals for 2019/2020 said that the concept of separate withholding tax rates for filers and non-filers was introduced as a measure for increasing documentation of the economy.
“Though large amounts are being collected from non-filers, no effort has been made to increase the tax base. The non-filers for the most part have build the cost of this government levy into pricing and passed it on to their customers.”
The PBC said that in order to broaden the tax base and to achieve increase in overall tax collection without burdening existing taxpayers, the policy to increase tax on non-filers / unregistered persons should be implemented specifically in the following cases:
a. unregistered industrial / commercial entities (not having STRN) having bill amount in excess of Rs20,000 per month, extra sales tax should be increased from five percent to 20 percent.
b. After collection of extra tax for a continuous period of six months, all these connections should be provisionally converted into NTN and STRN and return filing from these connections should be enforced.
c. In case of provisional registration, utility companies should be directed to issue show cause notices where annual billing amount exceeds Rs2.4 million and directing provisionally registered persons to obtain permanent registration. In case of non-compliance, utility companies should be directed to disconnect utility connections.
d. Moreover, in order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with electricity distribution companies. In case of failure to provide NTN, electricity connection should be disconnected. Considering the fact that all industrial/commercial connections will be linked with NTN, the tax department will then be in a better position to assess the electricity consumed by commercial/industrial users and corroborate the same with amount of sales/ production etc. reported in sales tax/income tax return.
e. In order to bring all commercial/industrial users in the tax net and to verify filer status, electric distribution companies should provide one year to all such consumers to get their NTN registered with them. Thereafter, such commercial / industrial consumers without NTN should be charged advance income tax at 30 percent (from existing 12 percent) on their utility bills. Those with NTN but non-filer status should be charged at 20 percent withholding tax.
f. Residential consumers should be made liable to provide NTN in case of electricity bill amount exceeds Rs1.2 million per year or levy advance income tax withholding of 20 percent.
g. All exemption (like exemption on agriculture income) under the income tax law should only be made available to filers so that exempt income is also reported and wealth is reconciled.
h. withholding tax on international business class tickets under Section 236L is same Rs16,000 for filer and non-filer, it should be increased to Rs50,000 for non-filers.
i. Withholding tax at five percent or Rs20,000, whichever is higher, is applicable under Section 236D on all functions organized by filers as well as non-filers. Rate of withholding should be increased for non-filers to Rs100,000 as minimum and no withholding tax from filer.
j. Function halls withholding tax on electric bills should be 30 percent which can be adjusted against tax liability by providing proof of tax deducted from their customers.
k. Withholding income tax on interest income under section 151 of Income Tax Ordinance, 2001 is 10 percent for filer and 17.5 percent for non-filer. Rate should be increased to 30 percent for non-filers.
l. Annual private motor vehicles tax under section 234 of the ordinance for non-filers is Rs15,000 for 1600 cc-1999cc and Rs30,000 for 2000cc and above. Rate for non-filers should be increased to Rs50,000 for 1600cc – 1999cc and Rs200,000 for 2000cc and above.
m. Advance income tax is collected on sales of immovable property under Section 236, which is 2 percent for non-filers, should be increased for non-filers to 10 percent for properties of 900 square yards or more.
n. Purchase of land (above specified limit) is only allowed by filers, however, holding of land and its sale by non-filers is still allowed. Holding of land by non-filers should be made more expensive by asking those authorities collecting property tax (cantonment boards/ societies/ registrars) to collect adjustable advance income tax, form non-filers, on behalf of the federal government as: Rs500,000 per year for 800 yards or more but less than 1800 yards; Rs1 million per year for 1800 yards and above.
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