27th March 2024

Mr. Malik Amjed Zubair Tiwana

Chairman
Federal Board of Revenue
Islamabad

Dear Mr. Tiwana,

Broadening of the Tax Base
The Pakistan Business Council (PBC) will shortly be presenting its annual proposals for the
forthcoming federal budget. In the meantime, given the urgency and importance of
broadening the tax base, attached are our proposals for your consideration.
Yours sincerely,

Ehsan Malik

cc: Mr. Muhammad Aurangzeb, Federal Minister for Finance and Revenue
 PAKISTAN BUSINESS COUNCIL
Proposals to Broaden the Tax Base
S. Objective Issue Recommendation
No.
1. To discourage parking of Significant difference between market and FBR values should reflect the market value, of which
black money in real estate. FBR values of immovable properties. Zameen.Com can be one of the sources.
2. To deter under-declaration Powers under Section 230F, which entitle Section 230F should be used to deter under declaration of
of transaction values the FBR to acquire a property within six transaction values.
resulting in perpetuation of months of a transaction to pay twice the
the informal economy chain. declared value are not being utilized.
3. To encourage retail FBR has discontinued the POS prize scheme POS prize scheme should be relaunched.
customers to report invoices even though a sum of Rs. 1 per invoice is still
issued without the FBR being collected from retail customers. At the
generated QR code. time when this scheme was in place, many
retailers were forced to issue QR code based
sales tax invoices due to pressure from
customers as well as fear of online complaint
to FBR by customers.
4. To encourage transactional Retailers are reluctant to sign up for POS It is proposed that the GST differential be increased to 9%
transparency through POS integration because of fear of losing for all retailers with POS connectivity so that sales tax
integration of retailers. customers to outlets that are not integrated. rate on POS integrated retailers be 9%. Furthermore, new
A high 18% standard GST rate provides retailers who integrate through POS be provided a higher
ample room for evasion. Even textiles and incentive of 10% reduction i.e. their GST rate should be
leather goods for which a reduced 15% GST 8% for the first three years. These reduced rates can be
rate applies, there is sufficient incentive for revised once substantial number of retailers integrate
non-POS integrated outlets to evade. through POS.
4. To identify potential tax Of the over 4 Mn industrial & commercial FBR should be empowered to coordinate with utility
payers and make it utility connections, only 200,000 are companies, banks, registrar of properties etc., to identify
expensive for them to registered for GST. As of March 2022, there tax evaders.
remain outside the tax base are over 66 Mn registered bank accounts, but
this does not correlate with the number of tax NADRA and other databases/sources of information
payers. should be mined and AI deployed to expand the tax net.
S. Objective Issue Recommendation
No.
The same rate of advance tax is applicable to filers and
non-filers - 5% for industrial and 12% for commercial
connections. The rates of advance tax for those industrial
and commercial customers who are not registered for
sales tax should be increased to 20%. The same
differential should apply to Gas bills.

Advance tax @7.5% is collected from residential

consumers not on the active tax payers list if the monthly
bill is over Rs. 25,000. It is suggested that for monthly
residential bills of over Rs. 100,000 for connections in the
name of occupants not on the active tax payers list,
advance tax be collected at a rate of 30%.

FBR should not become content with raising revenue

through advance tax from non-filers. It should be set a
target to convert these to filers.

5. To collect due share of tax Section 7E (tax on deemed rental income on Rules need to be framed by FBR to make it clear that
from those outside/ not in land and property) has been imposed, but Section 7E would also apply to non-filers at the same rate
the tax net. surprisingly the same is being collected from as filers for each year until the date of disposal of
tax filers only, whereas non-filers are property. This should be collected by the land registration
required to pay this tax only when they authorities before proceeding with transfer of title.
dispose off their property, and that too just Additionally, a delayed payment penalty should be levied
for a single year. for the period from when the tax would have become
payable had the owner been a tax filer to the date when it
was collected by the land registration authorities upon
sale of the property.
 S. Objective Issue Recommendation
No.
6. To broaden the tax base and Majority of retailers / wholesalers /street Raast P2M should be rolled out to emulate India’s Unified
encourage formalization vendors do not accept payment other than in Payments Interface (UPI) allowing users to make instant
through documentation of cash. payments directly from their bank accounts. Similarly,
economy. use of digital wallets and QR codes should be encouraged.

Use of debit and credit cards should be incentivized

through lower GST, as for example, 5% GST as when used
in restaurants in Punjab.

7. To make it attractive to join Most first-time tax filers are micro, small or Tax revenue from new tax payers should be the primary
the tax base and easier to file medium sized enterprises which lack target of FBR. Tax returns and processes should be
tax returns resources to comply with complex tax simplified and digitized. Personal interface between tax
procedures. A major reason for their payers and tax officers should be minimized. Without
reluctance to join the tax net is fear of some sort of assurance of protection from investigations
investigations about the past. Harassment of about the past, it is not likely that many MSMEs will join
existing tax payers does not serve as a good the tax base.
model for those outside the tax net.
8. To raise provincial revenue Provincial agriculture tax is effectively a tax Provincial tax rates on basis of agriculture land area must
from tax on agriculture and on land and not on income. Provincial be revisited to reflect changes in the income;
to formalize wealth and governments do not revise the tax rates to
income of agriculturalists reflect changes in income. If properly Even though agriculture income is not subject to federal
imposed, tax on income from agriculture of income tax, income tax return and wealth statement must
large farmers would generate significantly be made mandatory for all agriculturists with large land
higher revenue. holding. This will create transparency and prevent build-
up of wealth in the undocumented economy.
A large part of the black economy is funded
from what is described as agriculture
income.

27TH March 2024