PTBA proposes tax reforms to broaden tax base

KARACHI: The Pakistan Tax Bar Association (PTBA) has recommended broadening the tax base by imposing taxes on all forms of income, with an aim to increase the number of taxpayers to 50 million. The PTBA also advocates for greater uniformity in salaried taxation.

In its budget proposals for the next fiscal year to the Federal Board of Revenue (FBR), the PTBA suggested that pensions above Rs100,000 per month should be taxed at a fixed rate of 10 per cent. It also proposed discontinuing pension payments in foreign currency, implementing point of sale (POS) systems at the service provider level, and ensuring online issuance of exemption certificates within 15 days, in accordance with the law. The PTBA called for the withdrawal of the holding period for immovable properties, proposing that all sales and purchases be subject to capital gains tax.

The tax body also recommended the abolition of Section 7E of the Income Tax Ordinance, 2001, and the Capital Value Tax (CVT) on foreign assets. It suggested that tax notices under Section 122(5) of the ordinance should only be issued if data discrepancies are identified among tax filers. The PTBA proposed that notices under Section 122(5)(A) be issued only after amendments to assessments under Sections 122(1) & (5), and that refunds be automatically issued under Section 170(4) of the Income Tax Ordinance, 2001.

In the area of agricultural income, the PTBA suggested that the Federal Government should collect taxes on such income. The body also called for the return of income to be made available on the IRIS portal of the FBR in accordance with the time limits specified in Rule 34A of the Ordinance.

For indirect taxes, the PTBA advocated for the implementation of POS systems across all levels of trading activity. The association also recommended that the sales tax rate be reduced to a single digit (6.0 per cent) and that a lower rate of sales tax be applied to online banking or payments made via credit or debit cards.

Addressing the challenges of establishing an efficient tax system, the PTBA highlighted the failure to bring wholesalers and service providers into the tax net, the complexity of documentation, and the rise in tax evasion and avoidance. It also noted prevalent loopholes in both legal and administrative systems, the lack of information on tax obligations, and weak enforcement mechanisms, which hinder proper tax collection.

The PTBA also pointed to the cash-based economy and limited digital integration within businesses and tax collection systems as key issues contributing to the problem. It emphasized the need for a more streamlined tax administration and better delegation and accountability within the FBR. It warned of the ongoing conflict of interest between policymakers and tax collectors.

To address these challenges, the PTBA proposed leveraging artificial intelligence (AI) and digital solutions at both the FBR and businesses to enhance transparency and efficiency in tax collection. The body also called for improved FBR governance, the use of digital invoicing to track sales and purchase transactions, and the implementation of technological advancements through NADRA. It further recommended collaborating with reputable international service providers to digitize tax collection and establish new oversight mechanisms to strengthen the FBR’s governance structure.

The PTBA also proposed that the tax system be more taxpayer-friendly, suggesting that the tax cycle -- from collection to spending -- be transparent and geared towards benefiting the general public. It recommended investing tax revenue in key sectors such as health, education, infrastructure, and transportation, and suggested running government hospitals and schools under public-private partnerships, with tax filers benefiting from reduced or free services. The PTBA called for clear communication of the amount of tax money spent on each project or activity.

Under the Right to Information (RTI) law, the PTBA recommended making the tax returns of government officials, judges, ministers, and other officeholders available to the public. It also proposed revising the salary packages of FBR officials to align with those of provincial revenue authorities, and offering them better education and healthcare benefits. The PTBA further suggested that the FBR’s quarterly performance reports be published on its website, including data on the number of non-filers becoming filers and a scoreboard for tax filers.