Long-term tax policy reforms recommended: Economists for flexible tariff system

ISLAMABAD: Economists while recommending long-term tax policy reforms have urged the government to introduce and implement a flexible tariffs system in the country aiming at reducing reliance on revenue collection through higher tariffs, additional customs duties, and other arbitrary measures which have eroded the confidence, closed the economy as a result the investment and economic growth are continually declining in the country.

These policy recommendations were made by Dr Nadeem-ul-Haque, vice chancellor of Pakistan Institute of Development Economics (PIDE), Dr Ali Salman, Founder of Policy Research Institute of Market Economy (PRIME), and Dr Mahmood Khalid, senior research economist at PIDE while addressing a press conference, here on Monday.

They further recommended that the automation and digitisation to eliminate direct interaction between taxpayers and the tax authority were crucial. Transparency and digitisation are keys for tax administration, along with necessary changes in human capital and Federal Board of Revenue (FBR) service organisation.

They said that PIDE and PRIME had done extensive economic analysis to estimate the revenue implications of these reforms. As per the findings reforms in customs tariff revenue, including withdrawal of concessions and exemptions, and reduction in under-invoicing and miss-declaration, could bring Rs314 billion with 36.5 per cent growth over three years. General sales tax (GST) reforms could yield Rs2,566 billion in additional revenues with 33 per cent growth in the tax base over three years. Improved compliance in federal excise duty (FED) could yield Rs48 billion in additional revenue over three years, assuming a five per cent growth rate.

Capital gains tax reforms might result in a 20 per cent revenue reduction in the first year but would gradually return to existing levels within three years. Direct tax reforms are expected to result in Rs1,545 billion over three years, assuming a 27.7 per cent growth rate in the base. Overall revenue gains from tax rationalisations are projected to be approximately Rs4 trillion, showing a 26 per cent increase in the base over three years.

The commission highlights several flaws in the existing tax system. It is neither citizen-friendly, transparent, stable, nor predictable. Faced with increasing budgetary difficulties, reliance on ad-hoc measures has grown, leading to arbitrary withholding income taxes, turnover taxes, taxes on deemed incomes, and arbitrary revisions of tax rates.

Copyright Business Recorder, 2024