The Economic Advisory Council (EAC) on Saturday asked the government to ensure maximum compliance of existing tax laws and bring agriculture income into the tax net instead of going for assets/wealth tax.
Talking to reporters after the EAC meeting, former finance minister Shaukat Tarin said they were against wealth tax because it would be imposed on people already paying taxes and warned the economic managers that it would be hard for them to convince the urban people on paying taxes without effectively bringing the farm income into the tax net.
Provinces would also be invited in the next meeting of the EAC to discuss the modalities as to how to bring agri income into the tax net because they would be the implementing authorities. Tarin said at least one percent of tax-to-GDP ratio should be increased every year because Pakistan has lowest tax-to-GDP ratio in the region. He said it was also proposed to the government to create a public holding company to be run by a competent person from the private sector and all the State Owned Enterprises (SOEs) should be handed over to it to turn around the loss making entities and save the profitable units from going into losses. The members of the EAC have also reportedly asked the government to devise a plan within 30 days to deal with the energy crisis badly affecting the industry and population in rural and urban areas.
Dr Hafeez Pasha, Chairman EAC, told reporters that next year's budget should focus on growth as well as protect the economic stabilisation. In reply to a question about the assets/wealth tax, he said the decision has not yet been taken on the proposal. We have asked the government to take up the matter of taxing farm income with the provinces and asked them to ensure effective enforcement of existing agriculture law. Pasha said the government has not shared the budget figures for the next fiscal year with the EAC and may place them before the next EAC meeting on May 7.
Meanwhile, a statement issued by the Ministry of Finance stated that a meeting of the EAC was held with Dr Abdul Hafeez Shaikh, Minister for Finance and Revenue in the chair and was attended by Dr Hafiz A Pasha (Convenor EAC), Shaukat Tarin (former finance minister), Deputy Chairman, Planning Commission, Governor, State Bank of Pakistan, senior officials and members of EAC including Dr Ijaz Nabi, Jahangir Khan Tareen, Syed Salim Raza, Farooq Rahmatullah, Ali Habib, Nasim Beg, Farid Rahman, Dr Aisha Ghaus Pasha, Muhammad Arshad Chaudhry, Ali Jameel, and Arshad Zuberi.
Working groups on major sectors presented their recommendations. The taxation group highlighted the taxation areas being considered by the Revenue Advisory Council (RAC) which includes improving equality in the tax system and broadening the tax net. It was also recommended that the provinces be consulted on the agriculture income tax. Hafiz Pasha stated that the RAC will finalise its budgetary proposals in next few days and will present them in the next RAC meeting. He also suggested that provincial representation may be ensured in next EAC meeting.
Farooq Rahmatullah presented the budgetary proposals on the energy sector. It was suggested that distortions created by freight equalisation pool may be removed. LPG pricing be brought in line with import parity pricing and load management for natural gas be prioritised.
The presentation on capital markets highlighted areas to promote investment, encourage corporatisation, transparent trading and removing disparities in the tax structure. The EAC also deliberated on international trade and emphasised the need for removing onerous constraints of energy shortage and high interest rate. Banking sector reforms mainly dealt with policy formulation and institutional development. The emphasis was on establishing a fully functional debt authority that can professionally deal with the challenges of interest cost, hedging and optimal maturity.
Agriculture sector group focused on; (1) cotton - textile biggest exporter; (2) Crop water usage; and (3) dairy. It was suggested that R&D be improved and the legal and institutional framework be reformed to improve production of cotton bales. It was recommended that canal water be priced realistically. Following proposals were presented for the development of dairy sector:
Small dairy household be activated through community dairy farms. Move from subsistence farming to surplus farming. Need to provide knowledge, capital and markets.
Discussion on growth emphasised that budget formulation was taking place in difficult circumstances. The new growth strategy emphasising productivity led growth provides an important alternative route to growth. The role of SME sector was considered imperative for growth. Addressing the issue of circular debt to ease energy shortage can help bring online un-used capacity. Work on tariff will be taken forward and presented in the next EAC meeting.
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