ISLAMABAD: The government is set to increase the rate of around 30 withholding taxes (WHT) for those who do not file their income tax returns, in the budget announcement later this week.

An official source privy to the budget-making told Dawn on Monday that two major decisions have been taken in this regard — first, the existing WHT rates will be further increased and, second, the concept of higher rates will be extended to a maximum number of sectors.

“We have decided to raise WHT for non-filers for segments that were not previously covered,” the source said.

According to a Federal Board of Revenue (FBR) document, higher withholding tax rates apply for non-filers in 18 sectors, including tax on dividend; banking transactions other than through cash; purchase of immovable property; sales to retailers; sales to distributors, dealers and wholesale; immoveable property; tax on motor vehicle; brokerage and commission; tax on private motor vehicles; cash withdrawal from a bank; petroleum products; transport services; payment for goods and services; profit on debt; and dividend income.

The PML-N government introduced the tool to encourage documentation of the economy, but it has emerged as a leading source of revenue generation.

There are certain imports on which the government has introduced the higher rates for non-filers. In the next budget, more imports will be brought under this regime. In the withholding tax on payments to non-resident Pakistanis, the higher rates for non-filers will also be extended further in the budget.

The source said the rates of the existing withholding taxes would be slightly increased to encourage people to file their returns in the next fiscal year.

“This concept of higher rates for non-filers has helped FBR to mobilise resources,” FBR official spokesman Dr Muhammad Iqbal told Dawn. He said the rates would be further increased in the budget to document the economy.

On bank transaction tax, the spokesperson said no change would be made in the law in the upcoming budget. He said the 0.6pc tax on banking transactions exceeding Rs50,000 a day would remain the same even after the budget. The lower rate of 0.4pc is applicable in the light of decisions of the Economic Coordination Committee (ECC).

According to the FBR document, the higher rates of withholding taxes for non-filers are expected to be introduced for transactions by the Pakistan Mercantile Exchange Limited (minimum tax); education-related expenses remitted aboard; payment to resident for use of machinery and equipment; bonus shares issued by companies not quoted on stock exchange; bonus shares issued by companies quoted on stock exchange; tax on purchase of international air ticket/domestic ticket; tax on dealers, commission agents and arhtis; and collection of advance tax by educational institution.

Higher WHT for non-filers is also likely on advance tax on cable operators and other electronics; tax on foreign produced TV plays and serials; tax on function and gathering; sale by auction; telephone; tax on steel melters, re-rollers etc; electricity bill of domestic consumers; electricity bill of commercial and industrial consumers; CNG gas station bill; collection of tax by stock exchange; withdrawal of balance under pension fund; prizes and winnings; and income from property.

The source said that it was not necessary that higher rates apply to all mentioned segments simultaneously, but maximum areas would be covered in the budget 2016-17.

In the 1990s, withholding taxes were introduced to identify tax evaders. However, this concept of taxation has been eroded over time. Instead, it has become an easy tool for tax collection. If anything, heavy reliance on withholding taxes is making the income tax department irrelevant.

Published in Dawn, May 31st, 2016