ISLAMABAD: Finance Minister Ishaq Dar is meeting the business community today to look into the issue of advance adjustable income tax on banking transactions.
In the latest budget, the government proposed a 0.6pc tax on banking transactions exceeding Rs50,000 a day for non-filers of tax returns.
“The meeting is being convened to cool down the agitating businessmen,” a tax official told Dawn on Tuesday. “Traders who are unwilling to come under the tax net are pressuring the government into withdrawing all those measures necessary to curb tax evasion.”
Some traders are advocating that cash should continue to be the preferred mode for settling a majority of transactions, regardless of their size.
Federal Board of Revenue (FBR) Chairman Tariq Bajwa told Dawn the adjustable income tax has been imposed only on non-filers of tax returns.
He said people can file tax returns anytime, even with zero income. “It is not mandatory that return can only be filed when someone earns,” he said, adding: “Our focus is only on non-filers.”
To document the economy, the first effort was made in 1988 when the government forbade all businesses from using cash to settle any transaction larger than Rs50,000. However, the decision, rejected by the business community, was later withdrawn.
Another tax official said that through the Finance Act 2015 the government has done away with tax officials’ power of issuing notifications. “We cannot make any changes or withdraw any notification,” he explained.
For making any changes in SROs (statutory regulatory orders), the issue will be referred to parliament, the official added.
A new section, 236(p), in the income tax bill has been proposed to collect 0.6pc tax from non-filers at the time of sale of a DD, PO, SDR, CDR, STDR, call deposit receipt, RTC, or any other such instrument from a banking company.
The budget has also proposed collecting 0.6pc tax on the transfer of any money through cheques or clearing, interbank transfer through cheques, telegraphic transfer, mail transfer, direct debit, payment through the internet, payment through mobile phones, account-to-account fund transfer, third-party account-to-account transfer, real-time account-to-account funds transfer, ATM transfers or any mode of electronic or paper-based funds transfer.
The prize bond is another area that has been used to whiten black money. Under the law, no questions will be asked for purchases of up to Rs2.4 million worth of bonds. This is also one of the grey areas that need to be brought under the tax net.
Basically, the undocumented economy operates through cash transactions, but no practical or effective step has been taken to discourage that. While there are several ways to encourage transactions through cheques instead of cash, the government is evidently not willing to go in that direction.
The only tool it has employed towards documenting the economy is to increase the cost of not filing tax returns by increasing the tax rates for non-filers.
Meanwhile, Dar met FBR’s chairman and other senior officials on Tuesday and discussed the board’s administrative and financial matters and measures for broadening the tax net.
The finance minister said broadening of the tax net was an objective the government wanted the FBR to pursue with sincerity and dedication.
He said the government appreciated the contribution of filers to the national exchequer and was resolved to bring non-filers in the tax net through a sustained policy of encouragement, persuasion as well as administrative measures.
Without promoting tax culture in the country, the objective of overall economic progress could not be achieved, Dar added.
Published in Dawn, July 8th, 2015