KARACHI: The Site Association of Industry (SAI) said that imposition of advance income tax at different stages of economic activity was being used by officials to artificially boost up revenue collection.

In a statement issued on Tuesday, SAI’s Taxation Sub-committee Chairman Saud Mehmood said that any withheld income tax was adjustable and refundable but the tax officials held it back to show higher revenue figures in their respective regions.

Critical of the successive governments’ policy towards advance income tax being withheld at every possible stage of trading activity, he said this was technically not part of the revenue collection but rather a liability to be paid back to the taxpayers.

Once this policy is corrected there will be no incentive to impose a plethora of advance taxes as they will not help meet revenue targets, Mr Mehmood said.

Talking to Dawn, Shabbar Zaidi of Fergusons agreed that this was an issue but pointed out that the apparatus of withholding taxes in general was larger than what was collected as advance income tax alone. “Almost 50 to 60 per cent of all income tax is collected under some kind of withholding regime,” he said. Of these, the non-adjustable kind are far bigger – such as those imposed on imports of finished goods, commission income, local supply or interest on bank deposits.

“Almost 35-40pc of total income tax is collected under non-adjustable withholding basis under Section 148 of the Income Tax Ordinance,” he added.

Mr Mehmood said it was redundant to impose withholding taxes on filers of tax returns in the presence of quarterly payment of advance tax under Section 147 of the ITO.

He urged that all withholding taxes should immediately be removed which will not only reduce the cost of doing business but also encourage non-filers to become part of the tax net, he added. However, he went on to suggest that for non-filers, withholding scheme should remain the same, continuing to be treated as an indirect tax on consumption just like sales tax.

A disconnect exists between policy and execution from the fact that rate of income tax was brought down from 35 to 30pc as part of a fiscal policy to spur growth by leaving a larger share of profits with private sector to reinvest, said Mr Mehmood. “But unfortunately, a much larger portion of the private sector liquidity is blocked as advance income tax is not usually refunded on time,” he added.

Published in Dawn, January 23rd, 2019