OICCI for bringing all service providers, professionals into tax net

OICCI forwards its taxation proposals for upcoming fiscal budget to government

ISLAMABAD   -  The Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended to bring all service providers and professionals (including doctors, private hospitals, lawyers, painters, fashion designers, property dealers, interior designers, educational institutes including private teachers, coaching center, salons etc) into the tax net.

The OICCI has forwarded its taxation proposals for the upcoming fiscal budget 2024-25 to the government. It has asked that tax to GDP ratio be increased to at least 15% of GDP. It is recommended to allocate a major portion of FBR resources (IT, manpower, intelligence, data collection) towards broadening to tax base.

Wholesale and retail sector is connected with the supply chain of manufacturers/ importers. Hence its documentation is linked with how manufacturers and importers transact business with them. Income tax withholding presently applicable on the purchases of wholesale/ retail sector (i.e. on sales made by manufacturer and importer) should be applied across the board (by amending sections 236G & H) and such withholding should be made at a higher rate (at least 10%). At present some specified (and not all goods) are subject to tax withholding and that too at a rate not more than 0.5%. The above tax withholding should be supplemented by reporting of sales by manufacturer/ importers, with complete details of unregistered buyers (at present unregistered sales are not reported with relevant information). At first stage wholesalers and distributor should be required to provide information (Name, CNIC, NTN, Address) of their customers in their sales tax returns and withholding statements. Failure to do so should result in a disallowance of a portion of income tax and input tax. For Tier-1 retailers, including jewelers, property dealers, etc., FBR should ensure implementation of 100% POS integration, which is mandatory by law for sales tax by applying strict enforcement measures.

It recommended that in first place, details of agriculture and non-agriculture property should be obtained by the FBR and mapped with the wealth statements of taxpayers to identify the undeclared properties and status of owners of such properties; Withholding tax on immovable property (including agriculture land) to be collected along with property tax by provinces @ 0.5% of FBR value every year. The tax so collected would be adjustable against tax liability of the owner (credit for income tax collected on agriculture land can be given against agriculture income tax collected by provinces). Small properties may be excluded. This would result not only in documentation but identification of undeclared property.

CGT exemption on sale of immovable property (after 4-6 years of holding) should be available to those only who have declared the property upon acquisition and such exemption should be available for one property in 3 years.

The OICCI has suggested to bring all service providers and professionals into the tax net by implementing mandatory POS integration and also promote awareness for POS invoicing upon payment. Tax return filings to be made compulsory for annual license renewals in the service sector. For example, doctors should submit tax declarations to the Pakistan Medical Association (PMA), and tax consultants/accountants to comply with Institute of Chartered Accountants of Pakistan (ICAP) regulations, lawyers at Bar Council etc. Hospitals should also prohibit non-filer doctors from engaging in consultancy practices.

The government should provide digital IDs to small service providers such as plumbers, carpenters, electricians etc. It has asked that corporate law should be amended requiring incorporation of businesses surpassing certain financial thresholds. Meanwhile, the withholding tax rates for non-corporates should be enhanced significantly (like increased rates applicable in case of in-active persons) so that conducting businesses in such setups becomes more costly than corporate setup.

It has recommended for tax on agriculture income. Under the Constitution, tax on agriculture income is collected by provincial authorities. However, if agriculture income is not taxed in the province, then FBR can tax it as un-explained income/ assets etc. This area needs to be explored with effective administration and enforcement, to improve tax collection from agriculture sector.

The OICCI has proposed tax on builders and construction association. The rate of tax on builders for a 3000 sq ft commercial building is Rs. 80 / sq ft which is calculated as Rs. 240,000 total. Knowing the valuation of flat in Karachi, a 3000 sq ft flat can be not less than 3 crore rupees which means that the builder has to pay tax @ 0.8% only and all his liabilities will be vanished compared to salaried class which are paying tax @ 35% and corporates which are paying taxes @ 29% + 10%.

There are primarily two types of transporters: (a) one involved in transportation of goods and (b) the other involved in transportation of passengers. The advance tax collection on purchase/transfer of vehicle does not apply to these transporters as they pay annual advance tax, (collected with the motor vehicle tax) which is substantially low e.g. a 20-seater AC vehicle pay Rs. 30,000 income tax per annum (which is doubled to Rs. 60,000 maximum if the vehicle owner is a non-filer). Advance tax on (purchase/ transfer) of goods and passenger transport vehicles to be collected at the rate of 10% (at least) of the vehicle’s value.

For general revenue and documentation measures, the OICCI has recommended there are frequent travelers, including business and economy classes, avoiding taxes as well as identification. Income tax should be collected on all air tickets issued for foreign travel, from non-filers including applicability of withholding on hoteling and travel expenses. Many times, taxes are avoided by temporary change of tax residential status. It is suggested that assets owned by such individuals should be treated as sold in the year they become non-resident for tax purposes.

There should be no exempt income including pension. It recommended making NTN (National Tax Number) mandatory for opening / maintaining a bank account and issuing compulsory NTNs to non-filers for specific transactions like vehicle and high value property sales, foreign travel, and club memberships etc. Additionally, significant banking transactions of non-filers should be monitored to uncover the asset / income beyond means. Cash withdrawals/deposit by non-filers should be monitored by a separate wing of FBR, which should work in liaison with FMU of SBP.

It has asked the tax authorities to use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of ‘NADRA’ and ‘FBR Malomooat Portal’ database and other documented sources to ensure that all income earners should pay due taxes.

Various data/ transactions reported through withholding statements, data submitted by withholding agents including banks and utility companies, property registrar, excise, sales tax returns, etc should be used by FBR to broaden the tax base without giving burden to the existing compliant taxpayers.

To achieve the vision of digitalization interventions from both public and private sectors would be required. The existing IT infrastructure is unable to support even penetration of the banking sector within rural locations, hence movement of payment systems on digital platforms across the country will not be possible. The trend for movement to digital payment modes is now very common across other economies, hence government may need to onboard international e-commerce companies and Fintech for making these interventions successful.

The government should eliminate/ discourage the circulation of cash in economy for documentation.

Digital invoicing to be mandatory for all sectors, which is currently mandatory for FMCG sector only. Government should promote the platform/infrastructure for digitization of payments through fintech, POS invoices, e-Invoices, mobile wallets etc. This will also help the government to bring retailers and service providers etc into the tax net. Tax incentives and concessions should be provided to FinTechs and merchants in order to promote financial inclusion and move towards a cash-less economy. Rs 5000 notes should be demonetized to discourage cash dealings.

The OICCI has recommended policy reforms in FBR. Separate policy making as approved by the GoP recently. Research and Analysis Wing be formed, the FBR/MoF to align with revenue with current trend. FBR IT system be modernized and linked with critical database like that of NADRA etc.

It has asked for fully implement track and trace system in the FMCG, cigarettes, sugar, cement and other sectors to enhance tax revenue and combat counterfeiting.

Massive excise duty evasion (Rs. 82 billion) in the tobacco industry, duty-not-paid goods, along with under-invoicing adversely affects government tax revenue.

It has asked that the government should offer tax credits or deductions for businesses/taxpayers incentivizing compliance rather than over-burdening.

It has suggested that tax culture should be promoted through various communication channels eg. IVR (Interactive Voice Response) scripts during phone calls, social/electronic/print media, radio channels, morning shows, campaigns/roadshows etc. Taxes/levies knowledge should also be included in the curriculum at higher school education.

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