Pakistan’s upcoming budget for the 2024-25 fiscal year proposes significant changes aimed at broadening the tax base. The Federal Board of Revenue’s (FBR) budget proposals outline increased withholding tax rates for non-filers of income tax returns, potentially impacting various business and financial transactions.
Key Takeaways for Non-Filers:
- Increased Withholding Tax on Bank Withdrawals: Non-filers withdrawing cash from banks may see a rise in withholding tax from the current 0.6% to a proposed 0.9%. This could make accessing cash a more expensive proposition for those who haven’t filed their tax returns.
- Costlier Supplies for Businesses: Businesses supplying goods or services to non-filers may face a rise in withholding tax. This could potentially lead to increased costs passed down to non-filers, making certain purchases more expensive.
- Broader Withholding Tax Scope: The FBR’s proposal suggests an expansion of withholding tax to encompass a wider range of transactions involving non-filers. This could include areas like contracts and services, potentially impacting various business dealings.
Government’s Rationale:
These proposed measures are likely part of the government’s strategy to encourage tax compliance. By making financial transactions for non-filers more expensive, the FBR aims to incentivize individuals and businesses to register and fulfill their tax filing obligations. A broader tax base translates to increased government revenue, potentially used for public services and development initiatives.
Potential Implications:
- Impact on Non-Filers: The proposed changes might discourage non-filers from engaging in certain financial transactions due to the added cost burden. This could potentially impact economic activity and limit access to financial services for some individuals.
- Business Considerations: Businesses may need to adjust their pricing structures or internal processes to account for the potential rise in withholding tax on transactions with non-filers.
The Road Ahead:
The Finance Bill 2024, which incorporates these proposals, is currently under discussion. As the budget finalization process unfolds, it’s important to monitor any adjustments or revisions to the FBR’s initial proposals. The final impact on non-filers, businesses, and the overall economy will depend on the specific details outlined in the finalized budget document.
