KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested that the government should announce industrial amnesty scheme exclusively for the industry, without asking the source of income, as it would bring the undeclared hidden assets in the documented economy, besides boosting the economic activities, volume of export and creating more jobs.
In its budget proposal for the year 2023-24, the FPCCI noted that this will help raise the government’s revenue base and reduce pressure on the fiscal front. It would not only help widening the tax base by the inclusion of undeclared assets but also assist in decreasing Pakistan’s existing fiscal crisis.
Though volume of revenue collection has increased significantly from Rs. 3112,472 million in the fiscal year 2015-16 to Rs.6148496 million, showing nearly double revenue collection during the past six years but this period the ratio of tax collection (tax-to GDP) remained similar at near or above 10 percent for the last several years and considered as stagnant.
Tax-to-GDP ratio (under New Base Year 2015-16) was 9.5 percent of GDP while during fiscal year 2020-21 it was also 8.4 percent.
The tax system in Pakistan contributes less than 10% to the GDP, indicating that it is not ‘pro-growth’.
The tax system’s heavy emphasis on indirect taxation and surcharges is damaging the economy, and taxes are insufficient for debt service and defence. On the other hand, taxpayers lack knowledge of their obligations, and major tax policy changes are not accompanied by adequate changes in the administrative framework.
The tax administration lacks adequate organizations, business processes, facilities, budget, and management of human resources, which are not equipped with the current technological requirements.
The FPPCI suggested that tax policies should support businesses to diversify overseas markets, compete in international markets, and attract investment inflows for sustained economic growth. It said maintaining macroeconomic stability is a prerequisite for inclusive and sustained development.
It further said generating desired revenue from the existing tax system requires the government to review obsolete laws and rates and develop efficient administrative machinery with well-trained, well-equipped, and motivated personnel.
There should be harmony in the objectives of taxation and other industrial and macro-economic objectives.
Government officials need to be made accountable and transparent in managing tax revenues for the benefit of the country and citizens.
The tax system must minimize differences in tax rates and eliminate discrimination in favour of or against any particular economic segment.
The income tax laws are advised to be reviewed and updated within the regime of Withholding Tax. This review is requested to be updated to discontinue the category of filer and non-filer taxpayers. For Stance, in case of filer the taxpayer has a track record of his earning and expenditures with the tax authority and could be scrutinize within any tax year.
The government has facilitated the tax return filer by paying certain percentage of withholding tax and this can be updated in the tax record. Whereas in case of Non-filer, he is at the liberty by paying high percentage of withholding tax without getting into detail scrutiny or submission of any document from where he can be track by the tax authority.
This illogical and unjustified classification of filer and non-filer should be discontinued immediately. As a non-filer has to submit no document to the tax authority, so his income cannot be judged. Whereas the Tax Return Filer is totally exposed before the tax authority. It is; therefore, suggested that every taxpayer should be taxed on the principle of equal parity to bring every taxpayer in tax net to maintain transparency.
The unprecedented volatility in rupee-dollar parity is playing havoc with the economy. The imports of essential commodities and industrial raw materials are also under threat. Many factories are at the risk of closure or will have to face financial penalties for not being able to keep up with their production schedules and export deadlines.
FPCCI suggested ending the uncertainty, chaos and rumours in the market. The Government should launch and incentive scheme to channel dollar holding from lockers and personal safes into bank account. The government may exempt such deposits from any taxes if these have not been declared earlier in tax returns which will be held in local accounts for at least one year.
Upon the withdrawal of the Pakistani rupee, 1 or 2% profit should be offered as an incentive. Desired level of revenue cannot be generated from the existing systems, hence, to review obsolete laws and rates and create efficient administrative machinery with personnel who are well-trained, well-equipped, and motivated.
The Government must focus on rapid industrialisation and take bold steps to speed up economic growth by restoring the confidence of foreign and local investors. Trillions of rupees are hidden as undocumented money, which could be injected in the industry in order to generate millions of jobs.
Copyright Business Recorder, 2023
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