Federal Board of Revenue (FBR) Official has announced that a number of withholding taxes will be repealed or lowered. The changes will take place in the upcoming budget (2022-23)
As per sources, the revenue loss from the removal of withholding taxes would be balanced by a change in income tax slabs. The modification of taxes will be done for the salaried class. Furthermore, the exercise’s primary goal is to lower the cost of conducting business and facilitate commerce.
During the budgeting process, the FBR Official will select withholding taxes that have the fewest revenue effects while maintaining the documentation goal. A new Directorate-General for Synchronised Withholding Agents System will be developed to keep record of the future withholding transactions.
Withholding taxes cause distortions. FBR will reduce withholding taxes. All withholding taxes will be examined to see whether there are any distortions produced by income tax withholding. After that adjustments will be made to eliminate them. This will be accomplished by ensuring that every withholding tax received is either claimed or returned in the return filed.
The Income Tax Ordinance of 2001 contained 38 withholding tax measures. This large number of requirements adds to the complexity and places an excessive strain on different withholding agents to comply. It also has an impact on the country’s ease of doing business rating. Previously, 12 withholding taxes were eliminated in an effort to improve corporate efficiency and simplify tax rules.
The Overseas Investors Chamber of Commerce and Industry (OICCI) advocated that the Withholding Tax regime be overhauled, with rates decreased from the current over 26 to five for filers alone, and that this tax be applied solely to inactive taxpayers.
Alternatively, the 8% WHT rate on services is a minimum tax regardless of the service provider’s actual taxable revenue. This tax effectively becomes an indirect tax,which raises the cost of doing businesses.
The OICCI budget proposals added that withholding tax deduction u/s 153 (1)(a), which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies), should be made adjustable for at least the corporates on the inactive taxpayers’ list.