The Overseas Investors Chamber of Commerce and Industry (OICCI) has informed the Federal Board of Revenue (FBR) that the State Bank of Pakistan (SBP) and the FBR to devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of Rs. 2 million or more during the year have filed a tax return and wealth statement.
During a meeting between the FBR and the OICCI on budget proposals for 2021-22, the OICCI proposed that the FBR should simplify the tax structure of the country by implementing tax reforms recommendations already been submitted by various forums in the past, and also hold regular round table conferences with leading tax and legal experts to review existing laws for increasing the number of taxpayers and taxable entities.
The FBR was informed that the OICCI members have considerable experience and expertise in tax regimes in various regional countries. Therefore, the proposed tax recommendations given in this document, are the key proposals to energize the economy, bring equity into the tax system, and lay the foundation for FDI/investment growth in the country. There is a massive need to simplify the very complicated tax reporting system in Pakistan, as regularly highlighted in the World Bank’s annual Ease of Doing Business report.
Starting with the highlights of key tax proposals 2021-22, the major taxation proposals for all taxes and levies along with sector-wise recommendations are given in this report. As per recent past practice, Customs-related detailed duty revision recommendations are being separately submitted to the Ministry of Commerce/National Tariff Commission with a copy to FBR as well.
It proposed that the tax authorities should use technology, data analytics including Artificial Intelligence tools and make better/effective utilization of the NADRA database and other documented sources to ensure that all income earners are NTN holders and “Filers”, with submission of annual income tax/wealth returns and wealth reconciliation statements. FBR and SBP to devise a framework to ensure all customers of financial institutions whose account shows turnover in excess of PKR two million or more during the year have filed a tax return and wealth statement.
This could be done by the financial institutions simply notifying names/CNIC numbers of such customers to FBR without giving access to bank accounts. The OICCI proposed that the art exhibition halls, hospitals where doctors practice, hotels and other public places holding large receptions for fashion houses & designers, sale of branded/designer dresses, airlines, travel agencies, etc should provide names and addresses of the respective persons involved in these business activities to the FBR on a quarterly basis.
Once the FBR receives the above information, it should be pro-active and pursue potential taxpayers by sending them income tax return forms requiring them to file tax returns – rather than waiting for the tax returns to be filed.
The association proposed that section 111(4) of ITO 2001, last amended in 2018, should be further reviewed to restrict tax-free inward foreign remittances to immediate family members only.
The FBR should eliminate the culture of Amnesty Schemes as it discourages honest taxpayers.
It proposed that severe, and visible, penalties should be levied to punish tax evaders, starting with evasions of over Rs. 1 million.
As Pakistan is a signatory to the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which became operational from September 2018, regular coordination should be done with relevant authorities of countries, considered as tax heavens for stashing away illegal wealth, for information sharing, and cases of proven tax evasion publicly shared.
Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes if any person holds any kind of assets outside the country for which source of income could not be established.
It proposed that different treatments for filers and in-active filers are helping in increasing return filers and broadening the tax net. This treatment should be extended further e.g., Lower taxes should be charged to active filers on plane tickets, vehicle taxes, and utility bills, etc., and correspondingly, higher withholding taxes should be levied on in-active filers. Additional preferential treatments to active filers may also help – e.g., active filers should be given early utility connections, etc.