The Federal Board of Revenue (FBR) has imposed withholding taxes and income tax on rich people to the tune of Rs. 250 billion in the budget (2022-23).
According to the FBR, during the last few years, it has adopted a policy of reducing withholding tax provisions and introducing measures that directly target the rich.
Even, during the current year’s budget, maximum amendments were introduced regarding direct taxes. These amendments were aimed at taxing the affluent and wealthy class by including provisions such as super tax, CVT on foreign assets, deemed rental income on the assets of the rich, and higher rates for companies earning high profits such as banks. These provisions alone have a revenue impact of approximately Rs. 250 billion.
At the same time, certain withholding tax provisions were eliminated, and consequently, the percentage contribution of withholding taxes indirect taxes has been reduced to 65.8 percent during the first four months from 67.15 percent during the corresponding period of the previous year.
The FBR said that its present policy and that of the federal government is also based on a direct tax-dominated system i.e. the principle of equity where tax contribution is proportional to “ability to pay”. As a result, direct taxes collection continues to register steady growth and during the first four months of the current year, direct taxes/income tax have risen to 886 billion which is 41 percent higher than the direct tax inflows during the same period last year.
It also mentioned that there is a shift in the tax mix and the ratio of direct taxes to indirect taxes is also increasing. Resultantly, during the first four months of the current year, the percentage contribution of direct taxes in overall revenue has increased to more than 41 percent for the first time in a decade, against 36-39 percent in the past few years.
The FBR said that to improve the tax-to-GDP ratio, it is continuously striving to increase the tax base with the help of IT/automation and third-party data. In this regard, the Directorate General of Broadening of Tax Base was made functional last month along with the establishment of the Directorate General of Digital Invoicing & Analysis.
