Pakistan’s Federal Tax System is a huge puzzle that seems to get more complicated as the time passes. In the last 2 years, 5 different individuals have served in the role of Chairman of the Federal Board of Revenue (FBR) as the institution struggles to catch up with the consistently rising revenue collection targets set by the IMF.
A brief introduction of Pakistan’s withholding regime
Pakistan’s tax system is by design dependent on indirect taxes as the direct tax filing ratio is just around 1% of the total population. To facilitate the process of collecting direct as well as indirect taxes, the Federal Board of Revenue (FBR) implements its withholding tax regime in which taxes are deducted at the source of transaction rather than at filing of the returns.
The withholding tax laws of Pakistan state that Companies and other prescribed persons, known as withholding agents are required to deduct taxes, on behalf of FBR, while paying to their suppliers, vendors, service providers and employees.
The tax regulator has devised this mechanism to ensure that tax revenue is collected even if the majority of individuals required to file tax returns are not filing. However, this system is a matter of contention between the Industry and the Regulator. The content in this publication is expensive to produce. But unlike other journalistic outfits, business publications have to cover the very organizations that directly give them advertisements. Hence, this large source of revenue, which is the lifeblood of other media houses, is severely compromised on account of Profit’s no-compromise policy when it comes to our reporting. No wonder, Profit has lost multiple ad deals, worth tens of millions of rupees, due to stories that held big businesses to account. Hence, for our work to continue unfettered, it must be supported by discerning readers who know the value of quality business journalism, not just for the economy but for the society as a whole.To read the full article, subscribe and support independent business journalism in Pakistan
Although withholding tax is an advance tax that can be adjusted later at the time of filing and may be credited back by providing the proofs/evidence of deduction by the clients at source.
However, still in larger context, too much advance taxes may hurt the businesses and discourage the SMEs. Secondly, the process of refund adjustments is still complex.
There has to be some better agreeable way to move forward.
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