Conflicts and contradictions plagued by changes through statutory regulatory orders, customs general orders, and excise and sales tax general orders are some of the irritants which come in the way of doing business in Pakistan. These are compounded by different interpretations of sections of laws by different tax officials in different regions.
These impediments were brought to the notice of IMF by Engr M A Jabbar, Chairman of Site Association of Industry (SAI), at the conference on tax policy options, organised by the Federal Board of Revenue (FBR) in Lahore on December 19. Businessmen were invited to provide inputs on the recommendations announced in the conference by FBR Chairman. Comments were also given by IMF representatives, against which businessmen were asked to provide inputs.
The government of Pakistan is committed to enhance domestic resource mobilisation as part of its stabilisation and reform strategy to meet the targets of sustainable growth in the medium term. FBR considers key element in this regard, establishment of a fair and efficient tax administration that do not impede investment or production incentives and also raise enough revenues for the development and poverty reduction programs. The target is to raise revenue from around 10 percent to 15 percent of GDP within a tight timeframe of four to five years.
The conference was organised to focus on various issues concerning overall macroeconomic constraints, present revenue administration, assessment of main taxes, sub-national taxes and political economy of inter-governmental reforms and engage both local and international experts to brainstorm and exchange ideas.
The FBR Chairman said that during the conference deliberations on December 17 and 18, FBR officials, IMF and Advisor to Prime Minister broadly agreed to the following as broad-based recommendations.
A. Integration of sales tax and income tax officials be put in place who presently are working together under Regional Tax Offices (RTOs) and Large Tax Payers Units (LTUs) but still they are identified as separate service group. It is considered necessary to develop integrated systems.
B. Broaden tax base: due to low tax-to-GDP ratio all measures be taken to broaden the tax base.
C. Compliance of tax payment due and facilitation for taxpayers are recommended by the conference. The compliance tools to be used without harassment and presumed that transparency will ensure the just and fair usage of compliance tools for tax payments.
D. GST be changed to VAT mode as presently it is distorted and does not quality to be value-added tax as per universal practice.
E. Exemption and concessions be reduced as economic zones, export processing zone authority and special economic zones have not produced much results but often remained questionable as to their utility and use of facilities of total tax-free umbrella under which these special zones have/been working.
The FBR Chairman, after announcing the above recommendations, said that "we are working on policy reforms and we want to listen to businessmen and seek their inputs against our given frame work of recommendations".
Responding to recommendations announced/identified by FBR Chairman, Jabbar, representing the biggest industrial estate of more than 3,000 industries in Site industrial area, said he appreciated the efforts of former FBR Chairman Abdullah Yousuf as business-friendly. In his tenure, the quantum of tax collection had increased, possibly contributed by his business-friendly policies, and taxpayers enjoyed harassment-free climate.
On the low tax-to-GDP ratio, Jabbar supported the thesis given by Asad Ali Shah, President of the Institute of Chartered Accountants of Pakistan "that we must put our minds together to examine whether tax-to-GDP ratio can increase with downslide of GDP growth."
He said that while GDP was growing by more than 5 percent on average, the tax-to-GDP ratio was falling. He questioned as to how in the present pattern of collection of taxes-to-GDP ratio will increase when GDP growth is falling to 3.5 percent, as predicted by IMF and State Bank of Pakistan (SBP), and the targets by government have been lowered to 3.5 percent as likely GDP growth. He invited participants to break the gimmick that tax-to-GDP ratio may improve while the GDP is sinking.
The SAI Chairman gave comments of far-reaching consequences on integration strategy for sales tax and income tax, balancing of compliance and facilitation, broadening the tax base, GST-VAT mode and concession and exemptions. At the very outset Engr Jabbar informed the IMF about the features which Pakistan's tax system inherits. These are as follows:
-- Legal and frequent changes through administrative orders which need to be restricted to assure doing predictable business in Pakistan.
-- Taxpayers and those to be added as taxpayers have little education against the obligations towards tax statutes and discretionary powers of tax administration. Taxpayers require education on the obligation they own to tax administration and update themselves about the changing administrative orders which are equipped with discretionary powers given by present tax laws.
-- Tax policy changes are not accompanied by compatible changes required in tax administration for smooth conducting of tax business to promote economy amid harmony.
-- Organisational structuring of FBR does not keep pace with the changes in process procedure for conducting changes in the tax business, which again does not promise the required good relationship between tax administration and taxpayers for promoting economy of the country.
-- Management of human resource development was initiated in the tax reforms, which had created the necessity for hiring private sector professionals by FBR. With the inception of the new government the evaluation of the experiment was not shared with the private sector while doing away with the services of these professionals. This itself may be a manifestation of weak relationship between policy-makers and policy-buyers.
-- To achieve HRD targets, professionals may be rehired against given targets loaded by accountability against non-performance. In the past, little may have been done which may have resulted into non-exposure of reforms and kept the results as invisible due to weak consultations between the tax administration and tax payers. Reforms must be reviewed and be chased with the changes as outcome of the efforts so that overall results would bring as a role model of good tax administration to be borrowed by other developing countries.
Comments
Comments are closed.