ICAP Want Govt to End Tax Exemptions for High-Ranking Government and Military Officials

The Institute of Chartered Accountants of Pakistan (ICAP) has strongly recommended the withdrawal of income tax exemptions to high-profile officials/positions (military, judges, etc.).

ICAP has recommended an out-sourcing function of broadening the tax base to the expert agencies/organizations, and integration of housing societies/developers/builders engaged in selling of plots/building units with the Federal Board of Revenue’s (FBR) system to share real-time transfer of file/plot/building/building unit. etc.

According to the budget proposals of the ICAP for 2023-24, such information should be transferred to the Broadening of Tax Base department so as to analyze the information and cross-match the same with wealth statements and tax returns of buyers and sellers.

Further, FBR should modify its tax returns and wealth statements format to allow for a standardized property declaration mechanism to ease the matching of the property details for the field officers and the calculation of capital gains.

Re-activation of the Broadening of Tax Base Directorate is recommended by taking steps to either outsource their investigating activities to different expert agencies/organizations working in Pakistan (including Members & Affiliates of ICAP).

FBR may need to call for representations from different people willing to work for this outsourced function by reviewing their methodology of working in order to facilitate enhancing the tax base and identifying new taxpayers who are liable to file tax return but have not done so.

These outsourced expert agencies/organizations may be given a share in the collection of taxes if they are able to identify collections from new taxpayers. This will not only increase the revenue of the FBR but at the same time will not result in incurring any additional fixed administrative cost that might result in further burden on the exchequer.

The main reason why the existing force of the FBR is not able to increase the tax base seems to be over the burden of existing work on the field officers. Hence, outsourcing this function would be of great help in increasing new taxpayers and new collections of taxes.

The ICAP has further recommended Second Schedule to the Income Tax Ordinance has provisions that give a message that the government is not impartial in levying tax on all sectors of the economy or sections of the society. It demonstrates partiality by providing tax concessions and exemptions to those in power or who holds high-profile positions in the government thereby giving a message that the tax policy is tilted towards elites including landlords or the wealthy. The classic example is of exemptions available to agricultural income and the perquisites given to the military, judges, etc.

The Government should seriously consider the withdrawal of all unwarranted and discriminatory tax exemptions/ concessions provided in the Second Schedule to the ITO as without it broadening the tax base will remain a dream. This should be done proactively rather than at the behest of the International Monetary Fund.

ICAP strongly recommended taking the following steps for the smooth operation of the businesses, particularly for the startups and MNCs set up by foreign investments:

  1. Alternate Corporate Tax regime should be abolished
  2. A minimum tax regime based on turnover should be abolished otherwise the maximum rate of taxation should also be defined
  3. The withholding tax regime (including sales tax withholding) should be rationalized or completely done away with
  4. The hassles of compliance should be minimized and the risks associated with non-compliance be curtailed
  5. The corporate sector should only be subjected to advance tax, the frequency of which could even be increased from quarterly to monthly

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