Government’s policy to charge different tax rates for filers and non-filers has failed to yield considerable results. Authorities expanded the withholding tax net to almost all types of transactions, however, top contributors to tax treasury have remained the same.
In defense of government and policy makers, increased revenue through withholding tax has somewhat silenced the critics of the tax policy. However, this doesn’t change the fact that despite the new policy, top 20 contributors to the tax-net have remained unchanged in the past four years.
PML-N government announced two different tax rates for filers and non-filers in their tax policy. In a bid to increase the the tax-base, government increased the withholding tax to cover around 74 transactions. More than 20 of these new areas failed to generate Rs 500 million cumulatively. However, the tax collection through withholding tax did increase to 70% of total tax, up from 56% in just four-and-a-half years.
The top 10 contributors have stayed the same despite the new policy. In fiscal year 2016, these 10 areas contributed 93% of total revenue through tax collection. In current fiscal year 2018, these areas account for 86% of total revenue through taxes.
Here are top 10 contributing areas of tax revenue.
- Telephone bills
- Bank Interests
- Cash withdrawals
- Technical fee
- Electricity bills
Government collected Rs 426.6 billion (86%) of the total Rs 491 billion from taxes through these 10 contributors.
The government, in its policy, targeted hotels, restaurants, marriage halls, foreign films, educational institutions, wholesalers and retailers, dealers’ commission, banking transactions, realty sector and clubs to increase tax revenue and tax base. However, the policy failed to yield any considerable results. Here are the numbers behind government’s tax policy for the FY 2018.
- Rs 79 million through tax on pension funds.
- Rs 263.8 million were paid by non-resident Pakistanis.
- For non-residents, Rs 241.2 million were charged for the use of machinery, Rs 19.8 million for dividends, Rs 211.7 million as insurance premium and Rs 180,000 were collected on mineral extraction. Rs 100,000 were charged from Pakistan Mercantile Exchange.
- Rs 193.4 million through taxes on pay orders, demand drafts etc.
- Rs 268.6 million through taxes on air tickets for domestic travel.
- For international travel, Federal Board of Revenue (FBR) collected Rs 511.6 million in taxes
- Rs 301.5 million through advance taxes on electricity consumption.
- Rs 332.6 million through taxes on steel melters and rollers.
- Rs 38 million were generated by taxes on dealers’ commission.
- Rs 107.3 million were collected from taxes on builders and developers.
- Only Rs 1.5 million were collected through taxes on film production.
- Rs 436.5 million were collected through taxes on events and gatherings.
- Rs 14.4 million were collected from cable operators as taxes.
- Rs 346 million were collected from bonus shares of companies listed on stock exchange while Rs 50.6 million were collected from unlisted companies.
Overall, from withholding taxes, the WHT on contracts contributed 30% of total tax revenue. Rs 127 billion were collected from withholding tax on contracts during first half of current fiscal year.
- Rs 104.8 billion or around 25% of total tax was collected from tax on imports.
- Rs 57.8 billion were collected from taxes on salaries of people.
- Rs 30.8 billion were collected from dividends.
- Rs 25.1 billion were collected through taxes on telephone bills.
- Rs 8.2 billion were collected from the controversial 0.4% WHT on banking transactions.
- Rs 22.3 billion were collected from bank interests and securities.
- Rs 15.9 billion were collected from taxes on cash withdrawals.
- Rs 12.9 billion were collected as technical fee.
- Finally, Rs 13.4 billion were collected from taxes on exports.
So, the new policy might have increased the revenue but it has failed to increase the tax base of the country.