The Institute of Chartered Accountants of Pakistan (ICAP) has recommended the removal of the withholding tax burden imposed on listed companies by the Federal Board of Revenue (FBR).
In their proposals for the budget 2023-2024, ICAP highlights the challenges faced by compliant corporate sector taxpayers and suggests an alternative approach of monthly advance tax payments for listed companies.
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Challenges with the Withholding Tax Regime:
ICAP acknowledges that the corporate sector taxpayers are significant contributors to tax revenue and adhere to compliance requirements. However, they face difficulties due to the stringent and complex withholding tax regime. Challenges include the ever-expanding list of withholding taxes, difficulties in obtaining credit for withheld taxes, delays or non-deposit of withholding taxes by agents, and non-verification of withheld taxes in the FBR’s electronic database.
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Proposal for Monthly Advance Tax Payments:
As a solution, ICAP proposes that the FBR considers lifting the burden of withholding taxes for listed companies and replaces it with monthly advance tax payments. Instead of subjecting listed companies to numerous withholding taxes on their income and expenditure, Section 147 of the Income Tax Ordinance (ITO) should be amended to require listed companies to pay advance tax on a monthly basis rather than quarterly.
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Rationale and Benefits of the Proposal:
ICAP provides several justifications for the proposed change. Firstly, implementing this proposal would relieve listed companies of a significant burden and simplify the tax payment process for FBR officials, who would receive monthly tax payments directly from the taxpayers rather than through withholding agents. Secondly, it would reduce unnecessary documentation, verification hassles, and the risk of fraudulent activities by withholding agents. Thirdly, the proposal would improve the cash flow of companies and minimize their exposure to tax refund delays.
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Conclusion:
The proposal to abolish the withholding tax regime for listed companies and replace it with monthly advance tax payments aims to alleviate the challenges faced by compliant corporate sector taxpayers in Pakistan. The implementation of this recommendation would simplify tax compliance, enhance transparency, improve cash flow for companies, and reduce the administrative burden on the FBR. Overall, it would create a more conducive environment for listed companies to contribute to tax revenue while ensuring a streamlined and efficient tax system.
