The Institute of Chartered Accountants of Pakistan (ICAP) is urging a significant shift in Pakistan’s corporate tax structure. Their proposal, outlined in recommendations for the 2024-25 budget, involves replacing the current Withholding Tax (WHT) system for listed companies with an adjustable advance tax regime.
Curbing Complexity and Delays in the WHT System
ICAP highlights the challenges faced by corporations under the existing WHT system. The process is considered cumbersome, with difficulties in obtaining credit for withheld taxes creating hurdles for businesses. Missing documentation, delays in depositing taxes, and verification issues with the Federal Board of Revenue’s (FBR) database further exacerbate the situation.
A Simpler Solution: Monthly Advance Tax Payments
To address these burdens, ICAP proposes removing WHT obligations for listed companies and replacing them with monthly advance tax payments. This would entail amending Section 147 of the Income Tax Ordinance, 2001. Listed companies would then be required to make these advance tax payments on a monthly basis, as opposed to the current quarterly system.
Benefits for Businesses and the FBR
ICAP believes this shift would offer significant advantages for both listed companies and the FBR:
- Reduced Burden for Businesses: Listed companies would experience a lighter administrative load and a more streamlined tax compliance process.
- Enhanced Efficiency for the FBR: By receiving tax payments directly from companies every month, the FBR would no longer rely on withholding agents. This reduces the risk of fraud and simplifies verification procedures.
- Improved Cash Flow and Reduced Refunds: ICAP argues that the proposed system would improve cash flow for companies and minimize their need for tax refunds. Additionally, reduced paperwork and verification hassles would streamline tax compliance for all parties involved.
Towards a More Efficient and Transparent Tax System
ICAP’s proposal for an adjustable advance tax regime reflects their commitment to fostering a more efficient and transparent tax system in Pakistan. This change has the potential to streamline corporate tax compliance, benefitting businesses, and ultimately enhancing the overall effectiveness of tax administration in the country.
