The government plans to reduce tax deduction rates at source for raw material supplies to manufacturers from 4% to 3%, and for finished products to retailers from 5% to 4% in the next fiscal year. A single 5% source tax rate for contractor payments will replace the current tiered rates of 3%, 5%, and 7%. This move aims to ease financial pressure on local manufacturers and traders, treating the deducted tax as the minimum and final settlement if their income doesn’t exceed it. The changes also aim to prevent tax evasion by contractors who currently manipulate contracts to benefit from lower rates. However, the new rate may impact small contractors who benefit from the 3% rate. Business leaders have welcomed the tax reductions but stressed the need for a refund policy for excess taxes. They also highlighted challenges such as the cumulative 16% tax burden on the textile sector and the need for efficient tax collection, suggesting the use of electronic fiscal devices (EFDs) for wholesalers. The changes come as part of broader efforts to support local businesses while closing tax loopholes.
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