EDITORIAL: Pakistan Business Council (PBC) has urged the Federal Board of Revenue (FBR) to gather information from the stock market, property market and National Database and Registration Authority (Nadra) to enable it to enhance documentation as a start to bringing in new taxpayers into the tax net - a long-standing objective pledged by administration after administration (with or without being on an international donor agency bailout package), including the incumbent, but to no avail. Pakistani governments have typically relied on raising tax collections through indirect taxes and from existing taxpayers' (mainly from the private productive sectors and households) thereby stifling economic activity and eroding the quality of life of the people. Demand for revenue is ever rising and governments have relied not on increasing the tax to Gross Domestic Product ratio (it is less than 10 percent for the current year - the same ratio as in 2010) but also failed to bring in those sectors that continue to operate outside the tax net. Ishaq Dar during his tenure as the finance minister during the PML-N government levied withholding taxes on products/services that are in the sales tax mode whose incidence is greater on the poor relative to the rich, at different rates based on tax filer and non-filer. In other words, he created a new category under the 'non-filer' head and by doing so he allowed sectors operating outside the tax net to continue to do so legally. And disturbingly, his defense was that through the levy of withholding taxes total collections increased dramatically, his primary objective, with little attention focused on the source of revenue. Multilateral and bilateral donor agencies, the domestic private sector as well as independent economists, have repeatedly advised governments not to focus on raising revenue but on reforming the tax system itself which would render the tax system equitable (by raising reliance on income tax based on ability to pay principle rather than on indirect taxes), fair (by ensuring that those who are outside the tax net and have the ability to pay should be brought into the tax net) and non-anomalous (ensuring that all industrial units engaged in the production of one product are dealt with equally. Sadly, tax sector reforms remain unimplemented in spite of donor programme after programme (Pakistan has procured 22 on average three-year International Monetary Fund programmes in its 73-year history) that have identified tax sector reforms as an integral component. One can only hope that the PBC suggestion to use data available from all sources by the FBR form the basis for bringing new taxpayers into the net. Specific proposals in this regard made by the PBC are as follows: (i) unregistered industrial or commercial entities with a billed amount in excess of 20,000 rupees per month should be levied 20 percent sales tax instead of the existing 5 percent and after six months if these units remain unregistered they must be provisionally converted into NTN and STRNs with mandatory filing of returns; and (ii) utility companies to issue show cause notice where annual billing exceeds 2.4 billion rupees and making it mandatory to obtain permanent registration. Non compliance must be followed by disconnection but one year be given to get their NTN registered with electricity distribution companies. This newspaper would further suggest that an autonomous department be created in the FBR, answerable to the Chairperson, dedicated to tracking all available data sources to identify the unregistered industrial/commercial units. Once the identification process is complete the department must provide the information to the relevant division which would then initiate proceedings and in the event of delays or postponement in the proceedings the department should be able to issue show-cause notices to the concerned FBR official(s). To conclude, the current tax system is an impediment to not only growth but also provides incentives to those operating outside the tax net at the cost of those operating within. The need for change is paramount and one would hope that effective measures, though politically challenging, be implemented to ensure that tax sector reforms cease to be a source of concern to not only donors but also successive Pakistani governments.
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