ISLAMABAD   -   The Institute of Charter Accountants of Pakistan (ICAP) here on Saturday recommended the government to pay its special attention on ease of doing business, reforms in tax laws, harmonization of taxation system and broadening the tax base in upcoming federal budget for the fiscal year 2019-20. “Pakistan’s tax-to-GDP ratio is the main impediment in the economic development, which has compelled governments to take short-term tax measures.

At present, there is over dependence on the indirect taxes. There is a dire need for administrative reforms and formulating long term strategic policies,” said Ashfaq Yousuf Tola, Council Member and Chairman ICAP Committee on Fiscal Laws while presenting the budget proposals in media briefing. The ICAP noted that there are different sales tax rates prevailing across provinces, which needs standardization.

Standard rate of Sales Tax should be reduced to 13%, in line with the SST to attract more taxpayers into the tax net; reduce cost of doing business; and bring equity with other provinces. It has demanded that zero rating on export of all taxable services should be allowed without any conditionalities by all provinces in order to promote export of services in the international market.

The ICAP has recommended introducing proper mechanism in the law to bring the potential unregistered persons, whose information is already available in the shape of NTN/CNIC, through withholding provisions. The commercial connections of gas and electricity provided to non-filer should also be discontinued.

The ICAP has also asked for documentation of agriculture income. “There is a serious need of brining taxation

of agriculture income under a more transparent and documented manner”. Taxation of agricultural income may remain with the provinces, but under the Constitution there is no bar on federal government in documenting the agricultural income, the Institute of Charted Accountants proposed.It has also asked the government for facilitating and rewarding taxpayers to create an incentive culture. “To motivate, preferential treatment may be given to taxpayers paying say, tax of Rs. 1 million, or above in the year e.g., facilitation at NADRA, excise and taxation when registering motor vehicles, courts of law, airports etc”.

Similarly, all presumptive / value addition / fixed tax schemes should be abolished and, all such sectors / goods to be brought under the uniform tax regime to promote the culture of income-based taxation.The ICAP has recommended for simplification of withholding tax regime. For simplification, withholding taxes with standard rates be introduced, with additional higher rate for non-filer. All withholding taxes collected or deducted should be made available for adjustment.

Exemption certificates should be issued to filers for advance tax on quarterly / monthly basis. All tax revenue authorities should provide one-window solution for the taxpayer. This would be not only for enabling inter-adjustment of refunds, but also for one-return for both the federal and provincial taxes. It has also asked for a policy board comprising chairman of the FBR as well as the provincial boards should be formed to ensure uniformity in policies, tax rates and procedures of the federal and provincial revenue boards. Standard Schedule of services should also be introduced. The provincial statutes should provide classification of taxable services in a more consistent manner to provide clarity and help reducing unnecessary litigation.

The institute of Chartered Accounts of Pakistan has emphasized on single base for calculating property related taxes. “It is proposed that a single base be defined to calculate all the provincial and federal taxes applicable on acquisition and disposal of property”. The ICAP has recommended for imposition of digital tax. Digital tax can be initially introduced at the rate of 30% (on non-resident companies having no establishment in Pakistan) on their income from advertisements from Pakistan.

These companies are not adequately taxed as they are not established within the country. This will also encourage local software service providers to get registered and earn from local advertisements. It has proposed for introduction of environmental taxes. Higher tax should be levied at non-renewable, polluting inputs and outputs, such as coal, automobiles, chlorine, phosphate detergents, chemical pesticides, chemical fertilizers, lead acid batteries and plastic etc.

As an incentive, the organizations taking measures to preserve the environment may be made eligible for a tax credit.The ICAP called for identifying and penalizing non-filers. To eradicate the indifference between a filer and non-filer, and giving a sense of benefit to filers, non- filers should be penalized heavily in the form of withholding tax say 50% higher rates. Visit the local shops, retail outlets and services providers, if not registered, should be heavily penalized and compulsorily registered.

All utility connections amounting to Rs. 2.4 Million or more of non-filers should be forced to get registered by issuance of show-cause notices. A long term policy needs to be developed in Pakistan so as to attract global giants for establishment of their businesses in the country,for capacity building / establishing manufacturing facilities, and for transfer of technology.