Workshop on ‘Tax Reforms for Inclusive & Sustainable Growth’ held in Karachi

LAHORE: The Consortium for Development Policy Research (CDPR) in collaboration with the British High Commission’s Revenue Mobilization Investment and Trade (REMIT) programme and the Pakistan Business Council (PBC) recently held a day-long consultative workshop “Tax Reforms for Inclusive and Sustainable Growth” in Karachi.

This was the second workshop as part of CDPR and REMIT Programme’s ongoing efforts to generate a dialogue on tax reform with a focus on improving the performance of various federal taxes in terms of both willingness to pay and collection. It also aimed to provide input into the upcoming budget to support the Federal Board of Revenue (FBR).

The workshop was divided into three separate panel discussions on income tax, sales tax and customs tariff. In attendance at this workshop were eminent economists, representatives from FBR and Inland Revenue Services (IRS), and members of the Pakistan Business Council. Moderating this workshop was Dr Sher Afgan Asad of Lahore University of Management Sciences (LUMS).

Mike Nithavrianakis, the British Deputy High Commissioner in Karachi and Trade Director for Pakistan was also present at the workshop and he reiterated the British Government’s commitments to helping Pakistan achieve macroeconomic stability and the need for tax reforms to tap into the country’s economic potential.

Dr Ijaz Nabi (Chairperson, CDPR) similarly emphasized on the principles of fairness and equity which should be at the heart of Pakistan’s tax reforms.

Ehsan A. Malik (CEO, Pakistan Business Council) presented the view that the country’s fiscal policies need to be more business friendly to create a more conducive environment for businesses to grow.

The first session was focused on understanding how the income tax base can be widened.

Shabbar Zaidi, former Chairman, FBR noted that to bring high-worth individuals into the tax net, transactions larger than a certain amount should be done using the National Identification Card, so that all money flows are tracked. He also pointed towards the need for establishing a central database that integrates data from the National Database and Regulatory Authority (NADRA), FBR and power generation companies to identify potential filers. On the topic of agricultural income tax, Seema Shakil, Member Inland Revenue Operations at FBR observed that currently it forms only one percent of total collection. She noted that to increase its collection, agricultural income must be taxed at par with other income streams and should be collected federally.

The following session was centred on sales tax performance within Pakistan. Hamid Sarwar remarked that under the Constitution, the sales tax base was divided between the supply of goods (taxable by the federal government) and supply of services (taxable by the provinces). He noted that sales tax must be harmonized across provinces and the federation as that created uncertainty for businesses.

Ziad Bashir, Board Member Gul Ahmed Textiles added that the lack of continuity in government policy increased that uncertainty and undermined the taxpayers’ trust within state institutions. The panelists were all in agreement that the use of electronic point of sale terminals must be incentivized so that transactions can be tracked and used to determine tax incidence.

The last session focused on customs tariffs in Pakistan, and how they can be reformed. Robina Ather, Chairman of the National Tariff Commission, noted that trade-related taxes currently form around 55 percent of Pakistan’s total tax revenue. She further remarked that tariffs should be employed as a tool to promote economic activity rather than as a tool to raise revenues. The heavy reliance on custom tariffs is detrimental to economic growth.

Dr Aadil Nakhoda, Assistant Professor of Economics at the Institute of Business Administration (IBA) cited examples from comparator countries such as India, Bangladesh and Vietnam, who are part of global value chains because of reforms in their customs tariff structure.

Copyright Business Recorder, 2022