Federal Bureau of Revenue (FBR) is planning to suggest the Prime Minister to increase withholding tax on cash withdrawals by currency exchange companies this year. Some top FBR bureaucrats have prepared documents which include tax proposals of their own liking and preferences.
The FBR will propose to double the withholding tax, a payment collected as advance income tax, to 0.30%, up from 0.15%. The government plans on increasing their income tax revenue by Rs. 3 billion by employing this step during the next fiscal year.
If the change in the income tax structure is approved, it will be the second one related to exchange companies. Last year, the government began taxing the currency exchange companies for the first time.
All cash withdrawals are charged 0.30% for tax filers and 0.60% for non-filers
Section 231A of the Income Tax Ordinance states that the government will get 0.30% from income tax filers and 0.60% from non-filers on all cash withdrawals from banks. This ensures that the government gets as much tax possible as it can in advance.
On the other hand, all banking transactions under 236P of the Income Tax Ordinance are charged 0.40% at the moment. During the previous fiscal year, FBR received Rs 23.3 billion by charging a 0.30% tax on cash withdrawals over Rs. 50,000.
Any withdrawals over Rs. 50,000 are heavily charged
The FBR is considering bringing exchange companies under the normal withholding tax regime. It charges 51 different types of withholding taxes on various financial transactions, including educations fees for students. This is an easy method of receiving tax revenue from the public.
It is being reported that there is some infighting amongst the FBR’s top bureaucracy. Three of the senior officers want to bypass the Inland Revenue Policy wing and include their own recommendations for the Inland Revenue and customs duties. The final documents do not include a backdoor tax proposals influenced by certain lobbies. Some of the FBR officials are under the influence of these lobbies and plan on proposing their set of recommendations.
Tax experts say that taxing income tax filers in advance will only put them off. With news of Pakistani politicians and government officials not paying their fair share of taxes, it is difficult to force the public to pay their taxes. The public might not like being heavily taxed on account of corruption by the government officials.