ISLAMABAD: By reducing the standard rate of sales tax and abolishing special excise and other regulatory duties, the Federal Board of Revenue has succeeded in maintaining consistency in the implementation of tax policies to give economy boost.
This was stated by Dr Ather Maqsood Ahmed, former Member, Fiscal Research and Statistic FBR during a seminar on 'the revival of economic growth in Pakistan' held at the Prime Minister's Secretariat here on Saturday. Sources told Business Recorder that Dr. Ather made an in-depth presentation on the current tax system and policies to the top economic managers, economists and international donor agencies, revealing that 50 percent of the total FBR's taxes are contributed by only three sectors i.e. banking, telecom and oil and gas.
Dr Ather, who had also worked as Tax Administration Advisor to the FBR, further said that the government policy to gradually reduce the rates of taxes has not been implemented in the past. However, an impressive change has been witnessed recently when the FBR had reduced the standard rate of sales tax from 17 to 16 percent, abolished 2.5 percent special excise duty (SED) on all items, abolished federal excise duty on 15 goods. The government has abolished regulatory duties (RD) on 397 goods. The government policy to reduce taxes has been revived which is evident from the tax relief measures. Thus, there is a consistency in tax policy towards reducing taxes by the current tax managers of the FBR.
During the last session on "Addressing Fiscal Problems", former FBR Member said that taxpayer facilitation has increased under the reforms. However, Universal Self Assessment Scheme (USAS) has been implemented which is not backed by effective audit system. Recently, the FBR is trying to make efforts to reinforce audit, sources said.
Sharing good work of the FBR, he highly appreciated the FBR's recent enforcement measures, which have resulted in effective withholding tax audit. As a result of withholding tax audit the FBR has been able to reduce the gap between the potential of withholding taxes and its actual collections. This is clearly reflected from recovery of withholding tax from banks to the tune of billions.
Sources said that the former FBR Member pointed out that the revenue estimates have been over projected and expenditures have been under-projected. He referred to the fiscal 2009-2010 when the gap between the income and the actual expenditures has shown an increase.
Despite huge potential of agriculture tax, sources referred to him saying that the government is not properly collecting agricultural income tax. Only manufacturing sector is paying due amount of taxes although its growth is negative. The services sector is earning huge income but paying meagre amount of taxes in the national kitty.
He further said that there is a need to streamline the payments of income tax by the wholesalers and retailers. The FBR should focus on the important sectors like wholesalers and retailers to expand the tax base for increasing revenue collection. On the direct taxes side, the income of wholesalers and retailers is going up, but there is no corresponding increase in tax collection from these sectors. The aspect of increase in direct taxes from the wholesalers and retailers needs to be examined by the tax managers.
Sources said that Dr. Ather also referred to the transport sector, which is earning lot of money but contributing insignificantly in the form of taxes. Rich people are obtaining rental income in US dollars, but not properly paying tax on rental income as per relevant provisions of the Income Tax Ordinance 2001. If we analyse the housing sector, the collection from rental income is less as compared to the actual potential.
Within the tax system there is a very little diversification and only four top sectors are paying major chunk of taxes. The top sectors like oil and gas, banking and telecommunication are paying 50 percent of the total taxes to the FBR. On the other hand, other potential sectors like cement, sugar and textile are not paying their dues amount of taxes in the national exchequer. On the conclusion of the presentation, he added that the government should maintain fiscal discipline and abide by Fiscal Responsibility and Debt Limitation Law.
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