ISLAMABAD: The federal cabinet has been informed that a two-pronged approach will be adopted to deal with the narrow tax base and huge tax gap in various sectors of the economy to broaden the tax base and increase revenue collection.
The Finance Ministry has acknowledged that Pakistan’s tax system is plagued with the twin issues of narrow tax base and huge tax gap in various sectors, in its Medium Term Budget Strategy Paper for fiscal year 2021-22 to 2023-24, which was presented to the federal cabinet for approval.
According to budget strategy paper, a two-pronged approach to address these issues, enhanced enforcement, and appropriate policy intervention will be pursued.
All out efforts are being made to increase the share of direct taxes in revenues. Documentation of economy to increase the taxation in services, real estate, and wholesale and retail is top priority.
Use of information technology is the corner stone of FBR’s strategy for mobilisation of revenues.
It aims at automation of all business processes starting from registration to assessment and issuance of refunds. Installation of the “track and trace” system, point of sale integration of retailers with FBR’s computerised system, e-audit and e-appeals are at various stages of implementation and would be fully operational in the medium term.
The federal cabinet was informed that the FBR aims at re-designing the tax system on the principles of taxation, which, besides others, includes moving towards taxation of net profits under income tax and subjecting all taxable supplies to a standard sales tax regime.
The initiative involves removal of tax distortions, unnecessary exemptions, tax reductions, zero rating and major guiding principles of tax policy included; (a) corporate income tax reforms-removal of undesirable tax credits, accelerated depreciation, exemptions, reduced rates, exemption from specific provisions etc and this aspect has already been completed by promulgation of tax laws (Second Amendment) Ordinance, 2021; (b) personal income tax reforms-removal of unnecessary exemptions and rationalisation of tax rates and reduction of tax slabs; (c) reducing dependence on withholding taxes-FBR is contemplating reduction in number of withholding tax lines without compromising the documentation purposes of these taxes. Nine withholding taxes have already been abolished and further reduction is under consideration; (d) rationalisation of minimum taxes – the ideal principles of taxation envisage simple, low rate and broad based taxation structure and in order to achieve this goal, the FBR is rationalising presumptive and minimum tax regimes; (e) removal of anomalies in taxation – the present taxation structure is complicated and presents anomalous situation for various tax payers, which are required to be removed; (f) general sales tax on goods – this involves removal of unnecessary exemptions, reduced rates, zero rating and special tax regimes.
The broad guideline is that exemptions and concessions available to all goods except essential food items, health and education related goods are to be reviewed; (g) the FBR is pursuing sales tax harmonization with the provincial revenue authorities, which includes common definition of goods and services, common minimum threshold, harmonised tax rates, single portal and single sales tax return.
The initiative is expected to complete in the medium term; (h) the FBR is aiming at reducing difficulties of taxpayers.
The CNIC is being made as unique identifier for all taxes administered by FBR.
Further, valuation table for immovable properties are being harmonized with provinces.
Additionally, large sums of potential revenue are held up in litigation before appellate forums from Commissioners (Appeals) to Supreme Court of Pakistan. In order to reduce litigation, FBR is encouraging alternate dispute resolution mechanisms, agreed assessment in appropriate cases, and out of turn hearing by appellate forums in cases involving large amount of revenues.
The FBR has already achieved expeditious disposal of refund claims through the “FASTER” system, which has been acknowledged by all stakeholders. Automation and expeditious disposal of refunds is being actively pursued.
The initiative will be fully operational in the medium term.
As far as non-tax revenue is concerned, the federal government will continue the existing policy of imposition of levy, cess, surcharges etc over the medium-term. However, in order to introduce new streams of non-tax revenue, a comprehensive revision of existing legal frameworks will be undertaken in consultation with ministries/divisions concerned and necessary amendments in the relevant enabling laws, rules, regulations etc will be introduced.
The newly-introduced provisions contained in the Public Finance Management Act, 2019, will also be enforced to ensure optimal collection of non-tax revenue and to improve its reporting and reconciliation.
Copyright Business Recorder, 2021
Comments
Comments are closed.