The Federal Board of Revenue (FBR) has informed traders that the first installment of quarterly advance tax for the current fiscal year (2024-25) will be due in October 2024. This marks a significant shift from the current monthly tax payment system to a quarterly one. According to sources, this adjustment will require an amendment in the FBR’s notification to formalize the transition.
In ongoing discussions between the FBR and various trader associations, the Board is exploring a new proposal to streamline tax collection by categorizing businesses within the market. This approach would simplify the process compared to the current practice of conducting door-to-door market surveys, which is both labor-intensive and time-consuming.
Transition to Quarterly Advance Tax
The new system mandates that traders pay advance tax on a quarterly basis rather than monthly. The first payment, covering the July-September quarter of the 2024-25 fiscal year, is set to be paid in October 2024. This change comes as a result of extensive discussions between the FBR and the traders’ community, where both parties have been negotiating ways to simplify the tax collection process while ensuring compliance.
The traders, however, initially proposed paying taxes on an annual basis, hoping to reduce the frequency of payments. Despite these requests, the FBR has insisted on a quarterly system, citing that it strikes a balance between the need for regular revenue inflow and reducing the administrative burden on traders. By transitioning to quarterly payments, the FBR aims to create a more predictable and manageable tax payment schedule for traders, while still ensuring timely revenue collection for the government.
Category-Wise Tax Collection System
One of the key aspects of the new proposal under consideration is a category-based tax collection system. According to sources, this system would classify businesses into major categories, with each category being subject to a fixed advance tax rate. This would make the tax collection process more straightforward, as the tax amount would be pre-determined based on the category of the business rather than individual assessments.
This approach is expected to reduce the need for the FBR to conduct laborious door-to-door surveys to assess each shop or business’s tax liabilities. Instead, by identifying and grouping businesses into relevant categories, the FBR hopes to streamline tax collection while minimizing administrative costs and improving compliance.
The exact criteria for determining business categories are still under review, but sources indicate that the FBR will focus on factors such as the type of business, its size, and its revenue potential. This will allow the FBR to implement a tax structure that is fair and reflective of each business’s capacity to contribute, while also ensuring that the system is easy to understand and administer.
Amendments to Notification and Tax Procedures
In order to implement the quarterly tax system, the FBR will need to amend its existing notification that governs tax payment schedules. This amendment will lay the groundwork for replacing the current monthly fixed tax payment mechanism with a quarterly one, making it official. The Board is expected to announce the specifics of this amendment shortly, after finalizing the details of the new tax payment system in consultation with stakeholders.
The FBR is also reviewing the necessary legal changes to ensure that the transition from monthly to quarterly payments is smooth and does not cause any disruptions for traders. These amendments will also address any concerns traders may have regarding compliance and ensure that the new system is easy to adopt.
Feedback from Traders and Stakeholders
While the FBR has pushed forward with its quarterly advance tax proposal, the reaction from traders has been mixed. Some trader groups have expressed concerns about the potential administrative burden of quarterly payments, preferring the convenience of an annual tax payment system. However, the FBR has maintained that quarterly payments offer a more balanced approach, providing both the government and businesses with regular cash flow while reducing the frequency of payments.
The FBR is expected to continue its consultations with traders to fine-tune the system and ensure that the new category-based tax structure is equitable and fair. As part of these discussions, the FBR has also sought to address concerns about transparency and the need for a simplified process that avoids unnecessary bureaucratic delays.
Conclusion
The FBR’s shift to a quarterly advance tax system marks a significant change in how taxes are collected from traders in Pakistan. With the first installment due in October 2024, the new system is designed to streamline the process, making it easier for both the FBR and traders to manage their tax obligations. By categorizing businesses and introducing fixed tax rates, the FBR aims to enhance compliance while reducing the administrative burden on all parties involved.
As the FBR finalizes the necessary amendments and introduces the new system, traders will need to adjust to the revised payment schedule and tax structure. However, with continued dialogue between the FBR and trader associations, there is optimism that the new system will provide a more efficient and transparent framework for tax collection in the country.