"We believe that the complex web of advance income taxes being withheld at every conceivable stage such as sales to customers, imports, payment of utility bill, cash withdrawal, buying cars, et cetera, et cetera, stems from the wrong practice of recording withheld income tax as revenue," he said.
The SAI sub committee head indicated that even though, for filers, withheld income tax is adjustable/ refundable, yet the process is painstakingly slow as income tax officers do not want to lower their revenue collection figure by approving refunds. He said if advance income tax was recorded as liability, there would be no incentive to impose plethora of advance income taxes because collection of advance income tax will not help meet targets.
He said that the demanded steps, if taken by the authorities concerned, would reduce the cost of doing business for filers while encouraging non-filers to become a part of the tax net. However, for non-filers, the withholding scheme should remain the same where withholding tax would continue to be treated as indirect tax on consumption just like the sales tax, he said.
"Another disconnect between policy and execution is evident from the fact that rate of income tax has been brought down from 35 percent to 30 percent as part of a fiscal policy to spur growth by leaving a larger share of the profits with the private sector to reinvest," he said, noting that a much larger portion of the private sector liquidity than the 5pc reduction in tax rate is blocked as advance income tax, not being refunded by income tax officers because of the fear to miss their quarterly targets thereby rendering the fiscal measure of tax relief completely ineffective.
Saud Mehmood further said the key opposition to removal of withholding taxes from FBR is based on the fact the WHT on filers is also recorded as revenue even though it is just an estimated tax liability. Unless WHT and advance tax paid by filers is not treated as liability, FBR officials would continue to treat Income Tax as an indirect tax on consumption to boost their revenue collection the easy way, he said.
"For a manufacturer, who is a filer with over three years of business, there is hardly any probability of default in the presence of quarterly collection of advance income tax u/s 147 therefore this futile and counterproductive exercise of imposing advance tax on manufacturers who are filers should be withdrawn immediately," he urged.