Tax laws to be amended through Finance Bill 2009

[Naveed Yaseen]

By Sajid Chaudhry
ISLAMABAD: Some key amendments are being introduced to tax laws through the ‘Finance Bill 2009’ in the budget 2009-10, official sources told Daily Times on Thursday.

The amendments are for increased tax-to-GDP ratio relating to income tax, withholding tax, sales tax, and federal excise duty.

Amendments to domestic tax laws that would form the part of the Finance Bill 2009 include reductions in exemptions, zero-rating of Sales Tax Act, and simplified tax rate, withholding tax system to be rationalised or revised upwards in some cases and reduced exemptions of Income Tax Act, to be the part of the said bill, official sources added.

Tax to GDP to be increased by 0.6 percent in 2009-10 to meet the revenue mobilisation targets agreed with International Financial Institutions like World Bank and International Monetary Fund, the sources added. The motive of the measures to be introduced in budget 2009-10 aim at increased revenue mobilisation to meet the financing requirements of the development of the country.

According to a framework for regaining and maintaining macroeconomic stability in next fiscal year 2009-10 agreed with IFIs, comprehensive business process engineering strategy would be adopted and introduced in the next fiscal year 2009-10. Businesses registration to increase by 20 percent to expand tax net and increase in return filers. Taxpayers who have stopped filling income tax and sales tax returns to be reduced by 50 percent through encouragement, motivation and strict enforcement of tax laws. There is a proposal to impose heavy penalties on non-compliant taxpayers, who have obtained sales tax registration or National Tax Number and not filing both returns or not meeting other tax related obligations. The amendments would also include mechanism for dealing with cases of tax fraud and massive tax evasion and effective prosecution of such cases.

The tax authorities have agreed under the framework that risk bases audit coverage with rigorous quality assurance to be increased to 30 percent of big taxpayers dealt by Large Taxpayers Units (LTUs) and audit coverage would also be increased up to 35 percent of small and medium businesses in 2009-10. System 2009 related to the said measures to be fully deployed in FBR headquarters and field formations in 2009-10.

The Finance Bill 2009 would also include harmonised tax definitions and procedures for income tax, sales and federal excise duty so that in the inland revenues the new regime enforcement of all these taxes is ensured properly.

Finance Bill 2009 may also include enhanced incentives to increase own-source revenue bases of sub-national governments (provinces) and their utilisation. Regular tax policy analysis and revenue forecasting to be conducted by Revenue Division and Ministry of Finance so that tax projections are made on ground realities, official sources said.

The objective of these proposed amendments is to ensure effective function based and integrated tax administration is established in the country. In this regard, the government is in process of implementation of approved establishment of a new integrated tax administration on functional basis and related to Federal Board of Revenue’s (FBR) top management changes.

In the area of risk-based compliance management system implementation, task force would be constituted to pursue unregistered entities, non-filers and stop-filers and risk-based compliance strategies would be implemented. In order to ensure IT is aligned with business needs, LTUs and Regional Tax Offices (RTOs) would be selected a pilot for introduction of new Integrated Tax System based on System 2009.

In the area of tax policy reforms, the framework requires the government to approve action plan to amend legislation of domestic taxes to ensure comprehensive taxation of goods and services in the form of value added tax (VAT).

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