Withholding taxes may be reduced in budget

ISLAMABAD: The government is currently considering a reduction in withholding taxes as part of the fiscal budget for 2023-24. Simultaneously, there is a proposal to increase tax rates, taking into account the FBR target of Rs 9,200 billion set under IMF conditions.

The economy is already facing significant challenges, and the Rs 30 disparity between inter-bank and open market rates for the dollar exacerbates the situation. The preference of expatriates for informal channels such as hundi or hawala over banks has led to a decrease in remittances.

In an exclusive discussion, former FBR member Shahid Husain Asad explains that the government has implemented import restrictions to manage the balance of payments, which have had adverse effects on manufacturing and trade. He highlights that if the country’s economy fails to grow, tax receipts will decrease as taxes are closely tied to economic performance. He warns that neutralising the Rs 30 difference in the dollar rate through increased taxes could further harm the economy.

Individuals are already experiencing financial difficulties, and with the upcoming elections in 2023, increasing tax rates would not be favourable for the government.

A proposal has been put forth to reinstate the requirement of registering CNICs (Computerized National Identity Cards) for trades exceeding Rs 50,000. It is suggested that trade conducted with a CNIC should be reported to the FBR through online channels. Based on a person’s sales and purchase records, the department should generate a preliminary tax return, assess the individual’s annual income, and levy taxes accordingly. If an individual wishes to make amendments to the draft return, they can submit the revised version to the FBR.

Former FBR member Shahid Hussain Asad said that another point under consideration in the budget proposals is the current number of filers, which has reached 30 lakh. However, individuals typically become filers only when they intend to purchase properties and vehicles worth millions of rupees.

Another proposal being considered is that if a person, after becoming a filer, acquires a property or a vehicle valued at over Rs 1 crore, their tax case should undergo a thorough audit and scrutiny.