Federal Board of Revenue (FBR) has put forth a proposal which will see firms and individuals pay 25% more in ‘minimum tax.’
The proposal also suggests that due to the upcoming budget, the tax rates might be increased to 1.25% from current 1%.
The above mentioned details of the proposal contradict the guidelines provided by the Tax Reforms Commission (TRC), which suggested to lower the current tax rates by 50% instead.
Why was Minimum Tax Introduced?
The purpose behind introducing the ‘minimum tax’ was to ensure that taxpayers pay their dues. If a corporate concern had a turnover of over Rs. 10 million, it was bound by law to pay 1% of its overall sales in taxes.
Irrespective of whether a company was earning profit or not, it still had to pay the taxes.
There are around 24,000 companies which are paying taxes as addressed by the law but 30% of them are showing losses whereas 39% show neither loss nor profit.
The FBR’s proposal is expected to affect nearly 7,000 companies, if the proposal passes through the preliminary stages.
Over the course of the last four budgets, the new taxation measures grew revenues by Rs. 1.2 trillion thus far. Furthermore, total tax collection has also increased from Rs. 1.956 trillion in June 2013 to Rs. 3.114 trillion by June 2016.
FBR has set a target of collecting Rs. 3.887 trillion in taxes in the upcoming fiscal year. However, the International Monetary Fund says that the target should be Rs. 4.06 trillion.
Sources claim that since FBR has failed to improve its efficiency, it will have to rely on this new and proposed method to enhance its revenues and meet their set targets.
FBR also states that the filers of income tax returns is below 1.1 million and that the organization will be looking to improve on those statistics as well.