SOHAIL SARFRAZ
ISLAMABAD: President Mamnoon Hussain Monday signed the Income Tax (Third Amendment) Act 2016 to give legal cover to the voluntary tax compliance scheme launched for traders, who can now whiten their working capital up to Rs 50 million on payment of one percent tax.
Following signing the scheme by the President, the Federal Board of Revenue (FBR) has placed the Income Tax (Third Amendment) Act 2016 on its website.
Under the Income Tax (Third Amendment) Act 2016, tax at the rate of 1 percent on working capital will be payable on profits and gains from the trading activity, provided working capital does not exceed Rs 50 million.
According to the FBR, the Income Tax Amendment Act, 2016 is not a tax amnesty but it is voluntarily compliance scheme formed after extensive discussions with stakeholders like trade bodies and business chambers. The background of this scheme is that government introduced withholding tax at 0.6% on all the banking financial transactions conducted by non-filers, through the Finance Act, 2015. Trader bodies & Associations agitated against the deduction of tax on banking transactions as the traders community was affected mostly by the new levy.
In response to the appeal of traders’ community, FBR had been holding meetings and discussions with representatives of traders to dispel their misgivings and apprehensions. During meetings, it was communicated to trade bodies that majority of the traders are out of tax-net and they don’t fulfill their liability of filing income tax returns. The point of view of Traders’ Associations and their concerns regarding complex and lengthy procedures involved in Return filing were also given due attention.
Initially, to ease out the difficulties being faced by traders, the government decided to lower the rate of Withholding Tax to 0.3% from 0.6%, and ultimately towards the close of the negotiations a new plan had been devised after comprehensive discussions so as to provide an easy and smooth way for traders to get themselves registered. It fully takes into account the complexities and peculiarities associated with the business of traders.
The salient features of the scheme introduced for non filers are as under:
Traders shall file simplified income tax returns for Tax Years 2015-2018. Secondly, working capital up to 50 million can be declared under the scheme in Tax Year 2015 and income tax @ 1% of the working capital shall be paid and turnover tax for tax years 2016-18 would be payable on specified rates.
For tax year 2016, traders shall declare at least three times turnover on the working capital declared and pay turnover tax. For tax years 2017 and 2018, traders shall pay tax that is higher by 25% over the preceding year’s tax paid.
Traders shall not be required to withhold tax on the purchases made by them. They shall be entitled to take credit of imputable income on the basis of tax paid by them. Traders availing this scheme shall not be subjected to audit.
The FBR said that the voluntary Tax Compliance Scheme also covers the filers. Important aspects of the scheme in respect of filers are as under:
Traders who have filed returns for Tax Year 2014 or any preceding ten years are eligible. Traders shall file normal income tax returns for Tax Years 2015-2018.
Traders shall pay tax on taxable income or turnover tax whichever is higher.
The tax to be paid shall be calculated as higher of the following: Turnover Tax in respect of trading activities at the rates for non-filers, or tax higher by 25% of the tax paid for the tax year 2014 or for the latest tax year for which return has been filed, or
In case of loss or below taxable limit income in tax year 2014 or for the latest tax year, tax of Rs 30,000.
Traders who have already filed their returns for Tax Year 2015 can also avail this scheme subject to submission of revised return without the requirement of approval of the Commissioner.
Payment of tax at 10% of the tax originally paid for Tax Year 2015; or 25% of the tax paid for Tax Year 2014; or Turnover Tax at the rates for non-filers whichever is higher.
Traders shall not be entitled to take credit of tax deducted or collected at source in Tax year 2015 and any succeeding year.
Refund due for any preceding year cannot be adjusted against the tax payable under this scheme.
For Tax Year 2015 filing of wealth statement on taxable income up to Rs 1 million shall not be required.
Traders availing this scheme shall not be subjected to audit.
Traders shall not be required to withhold tax on the purchases made by them.
Traders shall be entitled to get the benefit of imputable income by paying 1% tax on the difference of imputable income and the taxable income declared.
However, the Scheme does not apply to persons convicted of an offence under Counter-Terrorism Financing/Anti- Money Laundering/Anti-Narcotics laws. Any business income other than trading income and Member of Senate of Pakistan, National Assembly of Pakistan or provincial assemblies.
The Voluntary Tax Compliance Scheme is based on long term-tax policy so as to give trader a confidence with clear terms, over four tax years. This scheme puts a huge impact for broadening of tax base by encouraging more and more traders to file their returns. It is expected to bear positive results, including enhancing tax compliance, inducing truthful declaration of income, expansion of the tax-base, discouraging tax evasion, raise in tax revenues, reducing cost of collection and cost of paying tax, minimizing contact between tax officials and taxpayers and creating tax culture and confidence of taxpayers, FBR added.
