ISLAMABAD: The high-ups of Federal Board of Revenue (FBR) will brief Prime Minister Shahid Khaqan Abbasi on newly prepared tax reforms proposals soon, Pakistan Today has learnt.
Tax Reform Commission (TRC), under the supervision of Federal Minister for Revenue Haroon Akhtar, has prepared fifteen proposals to improve the overall tax system of the country. The proposals are related to enhancing tax exemption limit, taxation on bonus shares, tax on retained earnings, government’s first right to pre-emption and simplification of tax returns.
Moreover, proposals include using Computerised Nation Identity Card (CNIC) as National Tax Number (NTN), one audit in a year , reporting requirements for banks, taxation on retail sector, strengthening of Information Technology (IT) system, installing customs scanners, improving the litigation management, making laws for prize bonds and introducing tax amnesty scheme.
Sources said that the TRC has given the proposal of enhancement of tax exemption limit from Rs0.4 million to 0.5 million.
TRC has further proposed that bonus shares shall be excluded from the definition of income, or the rate of taxation should be 1 per cent. Under the present scheme of taxation that has prevailed in Pakistan and adopted from the Income Tax Act, 1922, the value of bonus shares or the amount of any bonus declared, issued or paid by a company to its shareholders was always excluded from the definition of ‘income’ due to the reason that shareholder does not derive any income from the receipt of bonus shares.
Simplification of the tax system is another proposal in which the TRC recommended that all persons generating income in all categories should get themselves registered and obtain their National Tax Number (NTN) with tax authorities. The tax authorities should ensure that all NTN holders file tax returns along with simplified one-page wealth statement.
CNIC should be linked with NTN as presently there are sectors where business activity is conducted without getting them enrolled in the taxation system. Accordingly, these sectors tend to get away without the proper discharge of their tax obligations causing loss to the national exchequer.
In order to cover that loophole, it is believed that there should be a linkage between CNIC and NTN to enable revenue authorities to be in a better position to identify the potential untaxed cases.
Furthermore, NTN should be made one of the mandatory criteria for getting the commercial or industrial connection of electricity and gas services of the state.
TRC proposed that clear line should be drawn between honest taxpayers and tax evaders, before initiating tax audits. Parameters for audit selection should also be transparent. Only one audit should be conducted during a year, and in case there is no adverse report, there should not be any further audit for at least next three years.
This includes monitoring of withholding under section 161 as well.
This initiative will assist FBR in winning the confidence of taxpayers who are good corporate citizens, thus making way for further investments, reducing administrative hassles, releasing resources for operations and thus potential tax increases.
As per current practice, the prize bonds are being used as a means of whitening the money. The person purchases the prize bonds and gets hold of the script wherein they tend to get the money whitened upon account of winning of a prize through prize bond.
It has been proposed that the numbering of prize bonds be digitalized, and then on the acquisition of the prize bond, the digital number should be given to avoid the issuance of the script, which will definitely narrow down the whitening scheme which is in practice.
This will also make help in broadening of the tax base.
It has further been suggested that persons being the owner of prize bond digital number should not be subject to withholding tax. However, those who are in possession of script of prize bonds should be made liable to withholding tax as provided under current law.
A member of TRC on the condition of anonymity confirmed that the team will brief the prime minister soon on this issue as there is a dire need of restructuring the tax system of the country.
It is necessary to mention here that Advisor to PM on Finance, Revenue and EAD Miftah Ismail said that government will announce a Tax Amnesty Scheme very soon to bring investments from abroad into Pakistan as the top priority of the government is to promote the national economy and raise the growth of the gross domestic product (GDP).
