The Federal Board of Revenue (FBR) has proposed a one percent increase in all withholding tax rates starting October 1, depending on whether revenue shortfalls continue in September 2024.
According to sources, this proposal has been developed by the FBR to address potential shortfalls in tax collections if the agency fails to meet its targets for the final month of the first quarter of the 2024-25 fiscal year. If the FBR does not reach its September collection goal, the proposal will be implemented through a supplementary Finance Bill. The decision now depends on whether tax collectors can meet their targets for September, or if the increase in withholding tax rates will be enacted in October.
FBR to Reassess Retail Tax Valuation Following Traders’ Concerns
In the 2023-24 fiscal year, withholding taxes, collected as part of sales tax, represented over 70% of the total direct tax revenue. While the standard sales tax rate may remain unchanged, there is a proposal to raise withholding tax rates by 1% if revenue shortfalls persist.
The FBR has already faced a significant shortfall of Rs 98 billion in tax collection during the first two months of 2024-25, with net collections of Rs 1,456 billion against a target of Rs 1,554 billion. Sources suggest that the FBR might encounter a shortfall of nearly Rs 100 billion in September due to decreased import taxes and other factors. The anticipated 18% growth in domestic taxes might be revised down to 11% in the coming months due to the ongoing reduction in import levels.
FBR Committed to Enhance Revenue Collection through Data Automation and Innovative Solutions
Sources noted that, considering the current circumstances, criticizing senior tax officials and threatening suspensions or transfers proved ineffective in improving tax collection for September.
An urgent approach is now required, focusing on digitization to boost tax collection. This includes effectively monitoring withholding taxes using the “SWAPS” system and addressing illegal or excessive sales tax adjustments, which exceed Rs 1 trillion, through data analysis and verification by PRAL.
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