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FBR proposes introduction of 0.6% WHT on purchase of foreign currency

FBR proposes introduction of 0.6% WHT on purchase of foreign currency

ISLAMABAD: The Federal Board of Revenue (FBR) has proposed the introduction of 0.6% withholding tax (WHT) on the purchase of foreign currency and has sought to squeeze various expense allowances that industrialists get before computing their taxable income.

The proposals have been made to generate an additional Rs40 billion in taxes from five measures during fiscal year 2020-21, starting July.

It has also recommended bringing more sectors under the scope of advance income tax being charged from dealers, distributors and retailers, besides increasing their withholding tax rates, according to sources in the FBR. These sectors are dealt with under Section 236 G and H of the income tax law.

The revenue board is also considering limiting interest expenses and treating them as income beyond a threshold for foreign companies to meet international obligations.

The FBR has proposed 0.6% withholding tax on those who purchase foreign currency, said the sources. It has not quantified the revenue potential but sees a positive impact of the move on next year’s tax collection.

The concept of 0.6% withholding tax on cash withdrawal from banks by non-filers of tax returns had been introduced by former finance minister Ishaq Dar. The Pakistan Tehreek-e-Insaf (PTI) government now wants to extend it to foreign currency purchases, which may help it to get details of these people but FBR’s track record to chase the non-filers remains extremely poor.

For the next fiscal year, the International Monetary Fund (IMF) has proposed a Rs5.1-trillion tax collection target but the FBR has put the final figure at Rs4.9 trillion, said the sources.

Many rounds of negotiations have been held this week and another meeting took place on Tuesday evening to convince the Fund to ease the condition.

The IMF was also insisting on withdrawing all sales tax exemptions, which the government was keen to do at a later stage due to the impact of Covid-19 on businesses.