In order for the Federal Board of Revenue (FBR) to meet its tax collection targets, the board has tabled a proposal to increase the rate of ‘minimum tax’ on firms and individuals by as much as 25pc. The rate of tax is proposed to go up to 1.25pc from the current 1pc in the upcoming annual budget.
However, the proposal opposes the government-constituted Tax Reforms Commission (TRC) which had recommended that the current rate reduced by 50pc earlier. Moreover, the proposal is likely to be resisted by the corporate sector which is already overburdened by heavy taxation.
The minimum tax had promised to ensure that every taxpayer contributes towards the exchequer. It was mandatory for every corporation with an annual turnover of over Rs10m to pay a minimum 1pc of its sales in taxes irrespective of whether it was generating profits or not.
If the FBR’s proposal is finalised, at least 7,000 companies are likely to be affected. At present, around 24,000 companies file their returns and about 30pc of them declare losses while 39pc exhibited ‘no profit and no loss’ in the tax year of 2015.
The proposal will allow the FBR to try and extract more from the current taxpayers instead of widening the tax base.
In the previous four budgets of the incumbent government, the revenues from new taxation measures grew by Rs1.2t. The tax collection increased from Rs1.956t in June 2013 to Rs3.114t by June 2016, which precisely equated to the level of new taxation. This shows that the FBR failed to capitalise on inflation, which should have automatically resulted in increased tax revenue.
For the upcoming fiscal year, the FBR is proposing setting a target of Rs3.887t, while the International Monetary Fund is of the view that the target should be set around Rs4.06t. Sources are reported to have said that the FBR will have to rely on new tax measures to achieve the target since it has failed to generate revenues by improving efficiency.
Moreover, the policy to increase the tax rates for non-filers has failed to deliver with the filers of income tax returns remaining below 1.1m.
Furthermore, the FBR has responded to Finance Ministry suspecting that the proposal to abolish 25pc dividend on rental income from Real Estate Investment Trusts (REITs) is skewed towards benefitting a few individuals.
The FBR stated that as many as five institutions have proposed the abolition of the tax on account of being a hindrance to the promotion of REIT projects in the country.
