Federal Board of Revenue is considering another method which will increase tax collection from those individuals who already submit their income taxes. The FBR is planning to charge higher tax rates from those salaried employees who do not file their income tax returns. As a note, salaried employees already have their taxes deducted at source.
Government Tries New Method to Enhance Tax Collection Rates
The government currently collects Rs 79.4 billion only from salaried individuals, but plans seem to suggest that it wants to penalize non-filers. Income tax of the salaried class is deducted at source, i.e. when they get their pay. It looks like filing income tax returns is a huge priority for the government.
Last year, the government imposed additional withholding tax on all banking transactions valued over Rs. 50,000 during this fiscal year. The same goes for non-filers who are looking to buy a new vehicle. They are charged an additional amount if they do not file their income tax returns.
FBR officials say that they are considering a higher tax rate for non-filers, considering them in the high income bracket for taxing purposes. The move is a part of FBR’s strategy to penalise who do not submit income taxes.
The change has to be approved by the Parliament before it can be implemented for the fiscal year 2016/17. If this happens, this would be the first time that salaried individuals will be charged higher tax rates. However, sources say that FBR might exclude some low income tiers from the measure.
Data on Salaried Individuals, Income Tax and Withholding Tax
The government and the private sector deduct income taxes directly from the monthly wage if the annual salary is over 400,000. There are about 1.37 million salaried individuals who are paid over the aforementioned amount. Out of those, only 309,000 file income tax returns, say sources from the FBR.
Withholding tax is used to collect the largest share of tax from the public. During the last fiscal year, the government was able to collect Rs 691 billion (68.8% of total tax) in withholding taxes out of the total Rs 1.006 trillion received in taxes. FBR officials say that people and companies tend to understate their income and sales to reduce their taxable amount.
Officials have stated that sectors, which did not previously contribute significantly to the exchequer, will be taxed more heavily during the next budget. Currently, the highest amount of taxes are received from commercial banks, power companies and telecom companies.
It is hard to understand how the government can expect the general public to pay taxes when government officials and politicians themselves avoid taxes by laundering money to offshore companies.
If the considerations are an indication, the government plans to increase the tax burden on the public especially those salaried individuals, who are already bearing the brunt when it comes to income tax. It won’t be wrong to say the government is about to use salaried individuals and the common man as scapegoats to increase tax returns prior to the huge amount of loan payments the government has to pay back to local and international financial institutions by the end of 2016.