The federal government is thinking to scrap two dozen withholding taxes and different proposals are under discussion in this regard.

One of the main suggestions is to abolish withholding tax and Federal Excise Duty (FED) on credit cards for a period of three to five years.

This step if taken will facilitate the revival of the digital economy in the country. At present, there are 40 withholding taxes and government wants to scrap a dozen of them through Finance Bill 2021-22.

In the upcoming budget, the withholding tax on cash withdrawal from banks, contracts, supplies and salaries.

Another proposal which is being considered is to reduce the salary tax rates. Furthermore, FBR is considering proposals to introduce various offers to taxpayers to settle cases. 

This will be done by paying 20pc to 50pc amount of total involved amount at different stages of appeals.

The FBR has realised that it is collecting a negligible amount against some withholding taxes. It has found that around 7 to 10 withholding taxes contributed to almost 85 per cent of the collections under this head out of the total number of taxes standing at over 40.

“The government has decided to keep major revenue spinners of withholding taxes intact in the coming budget. All those WHT will also continue that are used as a tool for documentation of economy,” an official said.

As per its analysis, the FBR collects a major chunk of its withholding taxes from imports, salaries, dividend income, payment to non-resident, payment for goods, services and contracts, exports, electricity consumers, income from property, cash withdrawal from banks and purchase/transfer of immovable property and others. On imports, the FBR has collected Rs400 billion so far.

In a bid to bring distributors into tax net, the withholding tax rate of distributors might be reduced to 0.25pc. The government is also mulling to give exemption on withholding tax and GST on waste management.

The WHT tax rate of distributors might be reduced to 0.25pc, so it is basically aimed at bringing distributors into the tax net. Another proposal being mulled by the tax machinery is to exempt the withholding tax and GST on waste management for five years.

Regarding Special Economic Zones (SEZ), the government is thinking to grant tax incentives for a period of five years. The minimum tax rate of 1.5pc might be slashed to 0.5pc in the budget.


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