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Salaried persons could now come under the tax hammer

Salaried persons could now come under the tax hammer

ISLAMABAD: In another step to increase collection from those who are already inside the tax net, the Federal Board of Revenue (FBR) is considering charging higher rates from those salaried individuals who do not file their income tax returns.

The government’s current collection from the salaried class stands at Rs79.4 billion, but it is looking at ways to increase that amount by penalising those who do not file income tax returns.

FBR looking to milk more taxes

While the income tax of the salaried class is deducted at source, filing income tax returns has been a priority for the government. It imposed withholding tax this fiscal year on all banking transactions valued at over Rs50,000, a move aimed at increasing the number of tax filers.

Officials said that the FBR was considering either charging higher than actual tax rate or treat the non-filer in the higher income bracket for tax purposes.

The move is part of the government’s strategy to penalise those who remain outside the tax net. If approved by Parliament as part of tax measures for fiscal year 2016-17, this will be the first time that the government will expand the policy of charging higher tax rates from salaried persons. Sources said that the government may spare a couple of lower income slabs from the measure.

However, the policy of penalising non-filers has so far failed to increase the number of filers, although the FBR’s tax collection has significantly increased. For the current fiscal year, the total number of income tax filers remained below 1 million.

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Withholding income tax

The employer, whether the government or the private sector, deducts the income tax in advance from the salaries on a monthly basis if annual income is over Rs400,000. The withholding of the income tax is the third largest source of withholding taxes after contracts and imports, according to the FBR.

Withholding tax is being treated as direct taxes, although many withholding taxes are now indirect in nature. In the last fiscal year 2014-15, the federal government collected Rs691 billion in withholding taxes, which were alarmingly 68.8% of the total income tax collection of Rs1,006 billion.

There are roughly 1.37 million salaried persons who are getting more than Rs400, 000 annual salary. They paid Rs79.4 billion in taxes in the last fiscal year, according to the FBR working. Out of them, only 309,000 filed income tax returns, said the sources.

“The policy of penalising non-filers would continue the next fiscal year as well,” said Haroon Akhtar Khan, Special Assistant to Prime Minister on Revenue, while addressing a pre-budget seminar on Tuesday. He did not disclose new areas, which will be subject to this tax rate differential policy in the budget.

He said that the policy of different tax rates for filers and non-filers was working very well.

Budget expectation

The official said that in the new budget the government would also focus on those sectors that are taxed but are not contributing significantly to the exchequer. He said that the FBR was heavily dependent on commercial banks, power distribution companies and telecommunication companies for collecting taxes.

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Haroon said that the FBR did not have access to the systems of these entities and was unaware whether due taxes are collected and paid. He said the FBR’s forensic audit capacity would be strengthened to check such evasions.

While admitting corruption and inefficiency of the tax machinery, the special assistant complained about lack of tax compliance culture in the country.

He said the FBR found people and companies hugely understating their sales and earnings.

Courtesy : Express Tribune



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