The Pakistan Business Council (PBC), a leading advocate for Pakistan’s corporate sector, has urged the government to explore unconventional approaches to increase tax collection from the undocumented sector. This proposal comes as the government prepares the upcoming budget (2024-25) with plans to raise Rs. 1.2 trillion to Rs. 1.3 trillion through new tax measures.
PBC’s Recommendations:
- Revisit FBR Property Values: The PBC suggests reviewing the Federal Board of Revenue’s (FBR) property values to reflect current market prices. This aims to discourage the use of real estate for “parking black money.”
- Relaunch POS Incentive Scheme: The PBC advocates for reviving the discontinued Point-of-Sale (POS) prize scheme. This scheme previously incentivized retailers to issue sales tax invoices by offering customer rewards, encouraging tax compliance.
- Tax Reduction for POS Integration: The PBC proposes reducing the sales tax rate for POS-integrated retailers across all sectors to 14%, with a further reduction to 13% for newly registered businesses in their first year.
- Tax Audit Relief for New POS Retailers: The PBC recommends exempting newly POS-integrated businesses from tax audits and proceedings for at least three years to encourage wider adoption.
- Clarity on Section 7E: The PBC urges the FBR to clarify the rules regarding Section 7E, which imposes a tax on deemed rental income from land and property owned by non-filers. This would ensure consistent application of the tax across holding periods.
- Increased Penalties for Non-Filers: The PBC proposes progressively increasing tax rates on non-filers who fail to pay the deemed rental income tax under Section 7E every five years. This aims to deter non-compliance and encourage timely tax payments.
- Reviewing Agricultural Taxation: The PBC highlights the need to revisit tax rates in the agriculture sector. They propose adjusting tax rates to reflect increased income potential due to advancements and output growth within the sector.
- Mandatory Wealth Filing for Agriculturists: While agricultural income itself isn’t subject to income tax, the PBC recommends making wealth filing mandatory for all agriculturists under the Federal Income Tax Law. This would provide greater transparency into their financial standing.
- Widening the Gap Between Filers and Non-Filers: The PBC suggests increasing withholding tax rates for non-filers to a more significant degree compared to filers. This aims to incentivize non-filers to register for tax purposes.
- Higher Advance Tax for Non-Filers: The PBC proposes raising the advance tax on electricity bills and luxury vehicle purchases for non-filers to 30% and 24% respectively. This would increase their tax burden and encourage registration.
- Maintaining or Reducing Advance Tax for Filers: The PBC recommends maintaining or even reducing advance tax rates for registered taxpayers. This would create a clearer distinction between filers and non-filers.
Government’s Budget Plans:
The government intends to introduce new tax measures in the upcoming budget to bridge the fiscal gap. These measures are expected to include higher withholding taxes on non-filers, increased property and vehicle registration taxes, and potential adjustments to income tax slabs for salaried individuals.
Looking Ahead:
The PBC’s proposals offer alternative approaches to broadening the tax base and increasing tax revenue. The government will likely consider these recommendations alongside other revenue-generating options as it finalizes the budget for the 2024-25 fiscal year.
