THE prevailing taxation system of Pakistan needs overhauling to widen the tax net. Through the Financial Act, 2015, the government has started collecting 0.6pc withholding (reduced to 0.3pc till Nov 30) on every banking transaction valuing more than Rs50,000 carried out by a person who does not file income-tax return. According to the Federal Bureau of Revenue, this levy of tax is to broaden the tax net and is estimated to fetch at least Rs50bn.

Such erratic measures by the government are counter-productive. First, this kind of tax is directly hitting small traders, who are using the banking channel only to save money by direct transfer to accounts. Second, this is forcing businessmen to use the informal economy to avoid the withholding tax on bank transactions which, eventually, result in a decrease in money transfer through banks. Third, traders are concerned if they agree to come within the tax net, the FBR will start harassing them.

To win the confidence of traders, the government should announce a ‘tax amnesty scheme’ for traders who should not be subject to the computerised balloting process, which randomly selects a form to be audited for at least three years.

Moreover, the FBR should facilitate taxpayers in filing their electronic returns and also increase the capacity of the IRIS system to cater to a larger number of users and devise other measures to enhance the tax net.

Muhammad Azam Shaikh

Larkana

Published in Dawn, November 27th, 2015