Withholding taxes have been a significant source of revenue for the government, but they can also be a burden on taxpayers and businesses. In the upcoming budget, the Federal Board of Revenue (FBR) is considering proposals to reduce the withholding taxes to simplify the tax system and encourage compliance.
According to a FBR official, they will pick the rates that will least affect the revenue stream while reducing the withholding taxes. However, the government will revise the slab rates to cope up with the expected huge loss of revenue.
The government has already taken some steps to reduce withholding taxes, such as reducing taxes in banking transactions for filers and non-filers alike. They have also withdrawn eleven more taxes, including payment of royalties to residents, taxes on banking instruments, and taxes on transactions made other than through credit or debit card.
The Income Tax Ordinance 2001 had 38 withholding taxes provisions, which increased the complexity of the tax system and the burden of compliance on different withholding agents. This also affects the country’s business index, discouraging foreign investors and making the local business environment less competitive.
To address this issue, the Overseas Investors Chamber of Commerce and Industry (OCCI) has proposed that withholding taxes should be less complex. They suggest that the existing over 25 rates should be reduced to only five rates for filers, and the tax should only be applicable to active taxpayers. This proposal can encourage compliance and make the tax system simpler, while ensuring that the government still receives adequate revenue.
In conclusion, the reduction of withholding taxes in the upcoming budget can simplify the tax system and make it more compliant. The government should consider the proposals submitted by various stakeholders to make the tax system less complex and encourage foreign investment in Pakistan.