EDITORIAL: The Federal Board of Revenue (FBR) and the telecom industry seem to have got into a bit of a tangle over the issue of proposed tax incentives for the latter. To be fair both sides have pretty valid points. The industry wants the Advanced Income Tax (AIT), currently charged at 12.5 percent, to be abolished altogether so it can give broadband expansion the attention and fiscal space it needs. It is, after all, more of a sales tax than an income tax which makes it very regressive. Besides, a bulk of the people that use prepaid cards come from the part of society that largely falls below the taxable limit, and therefore cannot claim a refund on it. When they cannot file income tax returns to begin with how can they show that they have paid the required tax? Such problems exist and will have to be ironed out. Telecom is one of the few industries that have continued to do fine despite all the limitations of the pandemic and the lockdown and should not be unduly burdened by inefficient and ineffective taxation.
Yet the FBR is also right. The telecom industry might be doing well but the picture that the economy paints is not as rosy. The tax in question is among the richest and easiest sources of revenue because there is no question of pilferage, kickbacks or the other usual types of corruption. And it makes a healthy contribution to the exchequer. Just last year FBR collected Rs53 billion under this head. Now, since it understands the urgent need to show resource mobilisation, it seems to be trying its best to play a very tricky role in balancing the two positions. Digitisation of the economy, and the country of course, is a pressing need and the government must do whatever it can to facilitate it, which would no doubt mean making necessary funds available by agreeing to tax incentives just like the one FBR is opposed to. And it is also very important to generate revenue for the federal government. Right now, the state of the economy, and the likelihood of a sharp contraction ahead should another lockdown need to be enforced, simply rule out any such concessions at this point in time. Should the so-called second wave of the virus really shut down the economy, or even parts of it, again it would not just cut down on tax earnings but the government would also have to roll out another stimulus package just to keep it from collapsing completely. So it needs to collect every tax penny that it can while there is still time.
Then there's also the International Monetary Fund (IMF) breathing down its neck. It wants the government to improve its tax collection ability, even present a mini-budget, along with raising electricity tariffs to get the next tranche of the bailout program. Now if, in the worst case scenario, the worsening Covid-19 situation shuts down the economy and the IMF program remains stalled, the government will have nowhere to go as the economy suffers a blow that it might not be able to fully recover from. So industry specific incentives that might compromise overall revenue collection will have to wait for another day since the situation calls for strengthening reserves not weakening them. The pandemic has forced the whole world to reprioritise and Pakistan can no longer continue to be an exception because whatever advantage we gained by handling the first wave so successfully seems to be slipping away very fast.
FBR has, therefore, made the right suggestion. The Economic Coordination Committee (ECC) of the Cabinet should not consider abolishing the AIT. The economy is undergoing a painful contraction and prices might need to be raised even further to get more bailout money from the IMF. The government has resisted the Fund's demands so far, which is basically what has held back any progress since before the pandemic, but there's only so long its reserves can do without the money that the facility is meant to provide. Telecom will, like most other industries in most countries of the world right now, just have to bend to circumstance and take the pinch this time.
Copyright Business Recorder, 2020
Comments
Comments are closed.