Call to make NTN must for opening bank account

ISLAMABAD: The Overseas Investors Chamber of Commerce and Industries (OICCI) on Friday asked the government to make National Tax Number (NTN) mandatory for opening / maintaining a bank account and issuing compulsory NTNs to non-filers for transactions like vehicle and high-value property sales, foreign travel, and club memberships.

It said that significant banking transactions of non-filers should be monitored to uncover the asset/income beyond means. Cash withdrawals/deposits by non-filers should be monitored by a separate wing of FBR, which should work in liaison with Financial Monitoring Unit (FMU) of SBP. The OICCI comprising over 200 multinational companies operating in Pakistan asked for withdrawal of exemption for pensioners and imposition of tax on it. 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, it said.

The OICCI has recommended to eliminate/ discourage the circulation of cash in economy for documentation. The SBP has taken very positive steps in introducing/promoting RAAST digital payment, similar methods are required to be implemented to avoid circulation of cash in the economy, it added.

The OICCI said that digital invoicing should be made mandatory for all sectors, which is currently mandatory for fast moving consumer goods (FMCG) sector only. The government should promote the platform/infrastructure for the digitisation 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, it said.

It further said that tax incentives and concessions should be provided to fintechs and merchants in order to promote financial inclusion and move towards a cash-less economy. The OICCI recommended that Rs5,000 notes should be demonetised to discourage cash dealings.

The OICCI argues that tax collection currently is a fraction of the tax due to the government of Pakistan. Tax-to-GDP ratio should be increased to at least 15 percent of GDP and it is recommended to allocate a major portion of FBR resources (IT, manpower, intelligence, data collection) towards broadening of tax base. All sectors should contribute to the national exchequer in proportion to their contribution to GDP, including agriculture, real estate and wholesale/retail trade, the OICCI said.

For retail/wholesale trade, it is stated that 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 percent), it said.

It said that at present, some specified (and not all goods) are subject to tax withholding and that too at a rate not more than 0.5 percent. 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 distributors 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, the OICCI said.

For Tier-1 retailers, including jewelers, property dealers, etc., the FBR should ensure implementation of 100 percent POS integration, which is mandatory by law for sales tax by applying strict enforcement measures.

For immoveable property, the OICCI recommended that there are broadly two types of immovable properties; (a) agriculture property; and (b) non-agriculture property.

In first place, the 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) should be collected along with property tax by provinces at 0.5 percent 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, it said. It said that the capital gains tax (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 three years. The 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 centre, salons etc) into the tax net by implementing mandatory POS integration and also promote awareness for POS invoicing upon payment. Tax return filings should 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 should comply with the Institute of Chartered Accountants of Pakistan (ICAP) regulations. Hospitals should also prohibit non-filer doctors from engaging in consultancy practices. It recommended to provide digital IDs to small service providers such as plumbers, carpenters, electricians etc.

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 unexplained income/ assets etc. This area needs to be explored with effective administration and enforcement to improve tax collection from agriculture sector.

The rate of tax on builders for a 3000 sq ft commercial building is Rs80/sq ft, which is calculated as Rs240,000 in total. Knowing the valuation of flat in Karachi, a 3000 sq ft flat can be not less than Rs30 million which means that the builder has to pay tax at 0.8 percent only and all his liabilities will be vanished compared to salaried class which are paying tax at 35 percent and corporates which are paying taxes at 29 percent along with 10 percent.

It further asked the government to initiate thorough investigations into all ‘Nil’ tax returns and eliminate the culture of Amnesty Schemes as it discourages honest taxpayers. Based on the information exchanged through OECD Global Forum on Transparency and Exchange of Information, an appropriate action should be taken to bring undisclosed income/ assets in the tax net.

It also asked for establishing protocols for data confidentiality and security to ensure compliance with privacy regulations and protect sensitive taxpayer information. It asked the government to develop standardised reporting templates to facilitate regular monitoring and reporting of tax base expansion efforts based on data analysis.