IMF's possible tax-to-GDP demand: Tough decisions await government in forthcoming budget: Pasha

Former finance minister and prominent economist Dr Hafeez Pasha Tuesday said that the government will have to take tough decisions in the next financial year budget 2019-20 in case the International Monetary Fund (IMF) asks it to enhance the tax-to-GDP ratio.
Pasha was delivering his speech as keynote speaker at National Tax Conference organised under the theme "Taxation - A Pathway to Prosperity" here at a local hotel on Tuesday. The conference was first of its kind, hosted by the Committee on Fiscal Laws of Institute of Chartered Accountants of Pakistan (ICAP), for taking cognizance of the various tax issues hindering the growth of the economy.
For Pakistan, potential of tax-to-GDP ratio in 2019 is 17 percent. "This is as far as we can push it and interestingly for the FBR, the ratio is from 11.2 to 14 percent. The rest is provincial and other federal taxes. So, there is no way the government should agree over the next three years to the IMF programme to anything to exceed. As far as FBR is concerned, 14 percent of GDP is indeed going to be a major challenge," he said.
He said it was surprising that at present 72 percent of tax burden is on the industry in Pakistan, while 38 percent is on remaining 80 percent of the economy which is inherently unfair system and against industrialisation.
Dr Pasha said, "If we go to an IMF fund programme with the fiscal deficit moving towards 7 percent of the GDP and the tax to GDP ratio actually falling from 13 percent to perhaps 12 or 12.5 percent then guess what the Fund is going to ask you to do. It will ask you to increase tax to GDP ratio by at least three to four percent within the next two years."
He further said that he could assure that there is enormous pressure on the government to raise tax revenue indiscriminately without concerns of impact on the economy or relatively on poor people. "They (IMF) just want us to raise tax revenues," he said.
He said that he was accused many years ago of being the father of the tax regime because he was a key member of the commission but concept at that time was to tax through a withholding advance tax mechanism and not a fixed tax mechanism on only unearned capital income. "Three sources of income were taped by us; dividends, returns on saving schemes and bank deposits. And later on we had one last idea to tax through electricity," he recalled.
As a percentage of income, he said that tax paid including the income tax is flat. "There is no progressivity in our income tax system unfortunately. Because this 68 percent reliance on withholding tax has actually made income tax somewhat look like an indirect tax," he added.
Dr Pasha said there should be an out of box idea. India has a three percent education tax on all the taxes, historically called education cess. He suggested the government to levy 2 percent water resources cess for tackling water scarcity issues and building dams. Simultaneously let's get out of this horrible creature called the GIDC once for all because it has pending liabilities, he added. For the future, get out of this GIDC and get into the WRC (water resources cess). It is in Turkey, it is something called inheritance tax. "Would Islamic Council allow us to do this?" he asked.
Earlier, President ICAP Jafar Husain in his introductory remarks stated that the national tax conference was a great initiative taken by ICAP. He said that Pakistan's tax policies need reconsideration and it is high time that the current government highlights what the tax policies should be and this should be done in consultation with all the respective stakeholders.
While noting the efforts put in by the chairman of Fiscal Laws Committee of ICAP Ashfaq Tola, he further stated situation with regard to taxes is irritating that either the tax laws are not based on proper research or tax regulators or collectors are not ready to accept the changes in the law that require a change of mindset also. "We are moving in circles. We are having same changes after every five to six years. To increase the tax revenue, we need to document the economy," he suggested.
At present times, he said, broadening of tax base, documentation of economy and increase in tax revenue, all three can be achieved by the collection and analysis of the information with the use of technology.
The conference was divided into three technical sessions which all addressed various aspects of taxation and garnered an insightful discussion from the panellists as well as the audience.
The first session was titled "Harmonisation of Tax Laws - A Miracle in Waiting." The esteemed speaker for the session was Asif Haroon, Partner AF Ferguson & Co, while the session was moderated by Asad Feroze, Member Northern Regional Committee ICAP.
The Second insightful session was titled "Tax Reforms - A Shattered Dream," the context of which was highlighted by the speaker Abid Shaban, Advocate High Court. The panel was moderated by Khalilullah Sheikh, Chairman PAIB Committee at ICAP.
The last technical session of the day was "Doing Business - An Impasse." The expert speaker Chairman OICCI Abdul Aleem provided context and initiated the discussion with the panellists. The session was moderated by Mansoor Zaighum, Group Head Finance, Central Accounts and Taxation at Allied Bank Limited.
On ease of doing business, the experts said that the government should facilitate the investors, rather focusing on regulating sides, and more specialised persons should be inducted to improve the ease of doing index of the World Bank.
The conference concluded on an appreciative note. The well-attended conference provided a platform to tax experts, professionals and those from the public and private sectors to engage in a discussion and develop pragmatic solutions for a topic which is of great importance for the country as a whole.