The government may double the already high withholding tax on cash withdrawal from banks by currency exchange companies, as infighting among top bureaucrats of the Federal Board of Revenue (FBR) heats up over inclusion of tax proposals of their own liking in the upcoming budget.
The FBR has proposed an increase in withholding tax, which is collected as advance income tax, from 0.15% to 0.3% in a bid to receive additional revenue of Rs3 billion in fiscal year 2016-17, beginning July.
It will be the second change in the tax structure for exchange companies, as in the previous budget, the government had brought them in the withholding tax ambit.
Under Section 231A of the Income Tax Ordinance, the government currently gets 0.3% tax from filers of income tax returns and 0.6% from non-filers on cash withdrawal from banks on the pretext of broadening the tax base.
Separately, it also charges 0.4% withholding tax on all banking transactions under Section 236P of the income tax law. In the last fiscal year 2014-15, the FBR had received Rs23.3 billion by levying 0.3% withholding tax on cash withdrawals of over Rs50,000.
However, tax experts criticise the government for imposing withholding tax on cash withdrawals by filers of income tax returns.
The FBR is of the view that exchange companies should be brought under the normal withholding tax regime. It currently charges 51 types of withholding taxes on various transactions including children education fee and this mode of tax has become an easy source of generating revenues.
As the June 3 date for presenting the national budget approaches, the infighting among FBR officials over the selection of budget proposals for presentation to the prime minister intensifies, sources say.
A trio of senior FBR officers is trying to bypass the Inland Revenue policy wing and wants to include their proposals in a set of two documents that have been prepared to finalise tax measures for the Inland Revenue (income tax, sales tax and federal excise duty) and customs duty.
The documents have been finalised to ensure that backdoor tax proposals are not made part of the final Money Bill under the influence of certain lobbies.
There have been instances in the past when the FBR added the tax proposals that were not sanctioned by the finance and revenue minister.
“Two people cannot decide the fate of the industry and people,” commented a senior official.
FBR spokesman Dr Mohammad Iqbal denied any infighting among the top bureaucracy. “There is no internal rift between the FBR chairman and its members and the Inland Revenue policy wing is on board in relation to the tax proposals,” said Iqbal.
Sources said Prime Minister Special Assistant on Revenue Haroon Akhtar Khan was trying to examine the budget proposals to make sure that influential lobbies did not get their proposals included in the budget.
Khan’s priority is said to be striking a balance between the revenue requirement and a pro-growth budget. The political leadership wants that the new budget should stimulate investment in energy and housing projects and facilitate the agriculture sector that has been badly hurt over the last two years.
According to sources, if the internal tussle does not end, it could affect the budget preparation. Finance Minister Ishaq Dar had called an FBR team on Tuesday this week for presentation on the tax proposals. However, no meaningful discussion took place.
There are certain tax proposals that the political leadership does not want to be included in the next budget. However, some elements in the FBR, who are under the influence of different lobbies, want to bring changes according to their desire.
