Zero rating tax regime to be eliminated by 2023-24, says FBR chief

LAHORE: Federal Board of Revenue (FBR) will eliminate the zero-rating tax regime completely by 2023-24 as it has already abolished that from a number of sectors during the last budget and it will further remove many in the next budget.

Alongside, the rationalization of sales tax will also be launched with abolishing the zero-rating system so that the sales tax regime of Pakistan converted into a real VAT system, operational globally. Under the system, when a seller and manufacturer buys raw materials and other goods they will pay the tax and get a refund and get it adjusted when the product is sold without any delay.

To implement the system, the FBR would launch a new withholding tax platform in May this year. The platform will provide all the withholding tax definitions, tax rates and categories to the fillers. Once a filer makes an entry to the relevant category, the withholding tax will be deducted from its account and immediately debit it to the government exchequer. This will end the filling of withholding tax returns for the taxpayers and settle the cumbersome issues of withholding tax settlements. This was disclosed by the Chairman FBR Dr Muhammad Ashfaq responding to the queries and demands of the business community, here at Lahore Chamber of Commerce and Industry on Sunday.

Claiming the recently launched Faster – a tax refund system of the FBR, Dr Ashfaq believed it was one of the best systems of the world with a success ratio of 98.5 per cent. About 1.5 per cent discrepancies in a refund, he mainly blamed the taxpayers who file their returns wrongly or their IT system are not updated. So they face problems in getting refunds, he said urging the tax filers to update their IT infrastructure while the FBR is making all-out efforts to end the discrepancies and make the system successful, he added.

Speaking of duties on the import of plants and machinery, Dr Ashfaq wondered when the refund system is working then what is the obstacle in imposing duties at the import stage as the producers will claim their refunds and get back their money, he added. On the demand of ending the CNIC condition for the purchaser, Chairman FBR said Pakistan was in the spotlight of the world due to past activities. This condition could not be removed as the FATF is closely monitoring the financial transactions, he said adding Rs 57 billion transactions were made on fake CNICs. But the limit for CNIC requirement was already enhanced to Rs 100,000 which is quite reasonable, he said.

On attachment of bank accounts, Dr Ashfaq termed it the most civilized way for the recovery of taxes rather than sealing properties or business premises and then auctioning them. He asked the business community would they prefer the extreme corrective measure to bank account attachment. Furthermore, he offered the LCCI President that he can withdraw the power of bank attachment if he took the responsibility of compliance and ensure the tax will be paid by the defaulter within the stipulated time or otherwise the LCCI will pay them.

About the minimum tax regime, Dr Ashfaq said philosophically he is against this tax but the government is getting Rs 100 billion tax revenue under the head. So the FBR will gradually rationalize it and eliminate it in phases. It will take almost 3-4 years to eliminate the minimum tax regime, he observed.

Responding to Chainstore Association Pakistan Chairman Tariq Mehboob's question, Dr Ashfaq announced to revive the committee on Point of Sale and asked them to meet the FBR teams to address the emerging issues. Retail sector representatives also pointed out discrepancies in the POS and newly emerging IT issues, policy and other matters during the implementation of the POS. Reviving the NPO status of the LCCI, Dr Ashfaq directed the Lahore region FBR officials to hold meetings with the LCCI representatives and address the issues. The LCCI had NPO status abolished by the FBR a few years ago.

Dr Ashfaq said that we have to take responsibility for the cost of managing the country so the next generations don’t have to suffer. At present, the tax-to-GDP ratio is around 12 per cent while the expenditures are around 20 per cent of the GDP. He said the difference of 8 per cent has to be managed through loans which would be owed by the next generations. “We must pay taxes to bridge the 8 per cent gap”, he added. Agreeing with the business community, the Chairman FBR said there should be no misuse of tax exemptions in FATA and PATA. He said that to rectify things, a system is well on the way. More tax exemptions would be withdrawn in the next budget.

Earlier, in his opening remark, LCCI President Mian Nauman Kabir pointed out the issues of taxation measures in supplementary finance bills, bank accounts attachment, withholding tax, harassment by the tax officials and duties, taxes on the essential raw materials etc. Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq also spoke on the occasion. LCCI former presidents Bashir A. Baksh, Sohail Lashari, Tahir Javed Malik, Zafar Iqbal Chaudhry, former vice presidents Shafqat Saeed Piracha, Kashif Anwar, Tahir Manzoor Chaudhry and Executive Committee Members were also present.