With each passing month, the government’s target to collect Rs12.97 trillion as Federal Board of Revenue’s (FBR) taxes for the ongoing fiscal year seems to drift further out of reach. For context, the tax collecting authority fell short by nearly Rs100 billion in just July and August.
In a rare acknowledgement, the FBR officially admitted that the tax machinery suffered a huge shortfall of Rs98 billion in tax collection during the Jul-Aug period, as net collection stood at Rs1,456 billion against an assigned target of Rs1,554 billion during this period.
This comes despite excessive hikes in taxes by the authorities in the Budget FY25 and a year-on-year increase in collection of nearly 17%.
Similarly, the government’s much-touted Tajir Dost Scheme displayed a more sorry picture after only 277 shopkeepers/retailers were reported to have so far paid Rs503,632 as tax under the scheme, the latest data released by the FBR revealed. Meanwhile, the number of retailers registered under the scheme stood at a mere 63,964.
“The government should get rid of the non-filer term, which is a legal term and a major impediment to growth in the number of tax filers,” says Zeeshan Merchant, President KTBA
The authorities’ inability to increase the tax revenue and the base is a worrying sign for the government which needs to meet the targets agreed with the International Monetary Fund (IMF).
Islamabad is still scrambling to secure financing commitments as it looks to secure the Executive Board approval after its staff-level agreement (SLA) inked on 12 July 2024.
On the other hand, Finance Minister Muhammad Aurangzeb remains adamant about increasing tax collection.
In a recent presser, the former banker urged wholesalers, retailers and distributors to contribute to the country’s economy.
“However, one thing I want to be very clear on; this is not going to be taken back,” he said.
“Countries don’t work on charities.”
This has sparked concerns among market experts that yet another mini-budget could be in the offing as the government seeks to meet its target.
However, if that is the case, will the masses willingly accept it or will it lead to further agitation? And what will it mean for the broader economy?
“It seems that the authorities have failed to understand that the cost of doing business has reached an all-time high,” said renowned tax expert Zeeshan Merchant, who also serves as President of the Karachi Tax Bar Association (KTBA).
“Adding to it is the ongoing political unrest, especially in Balochistan and Khyber Pakhtunkhwa. Keeping aside foreign investors, local businessmen are not willing to invest in the economy in the current scenario,” he said.
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On the other hand, rising energy prices and stagnant incomes have squeezed away much of the purchasing power, leaving many disillusioned with the government policies.
“Why should we pay taxes? What are we getting in return?” asked Mohammed Basheer, a hosiery item vendor running a small shop in Karachi’s Bohra Bazaar.
“We pay taxes on everything including electricity bills, gas, and motor vehicles, and in return, we get subpar education and healthcare, no security and dilapidated infrastructure.”
Experts argue that a complex tax system and a trust deficit between taxpayers and the FBR are the major impediments behind the low number of filers.
“The current tax system is hostile towards the taxpayers, it is easier to do business while being a non-filer in this country.
“One will be saved from audit penalties, surcharges and frivolous claims,” said Zeeshan Merchant.
The tax expert expressed that the government’s Tajir Dost scheme was a nonstarter from the outset.
“It was filled with anomalies, as the government wanted to register 3 million retailers through indicator income, but how the authorities are computing this income remains unclear.”
However, the situation can improve if the government displays greater respect toward its tax filers, said Zeeshan, while providing some recommendations.
“To begin with, the government should get rid of the non-filer term, which is a legal term and a major impediment to growth in the number of tax filers.”
Secondly, taxes should be rationalised and reduced for all classes including traders, corporate and salaried classes, Zeeshan said, arguing that higher taxes only lead to further fueling the undocumented sector.
The Tajir Dost scheme also needs some fundamental changes to work “as the government should refrain from retrospective taxation and only utilise progressive taxation,” he mentioned.
Lastly, updating data and improving cohesion with other government departments would also help FBR in its tax collection efforts.
Although no one is discounting the fact that paying one’s dues is a duty of every citizen, the public also seeks assurance that the funds generated would be utilised for the betterment of the country and the upliftment of its citizenry.
Masses argue that while they are pressured to pay up, the decision makers themselves are unwilling to reduce their expenses – the recent resignation of Dr Kaiser Bengali, a renowned economist, from the Prime Minister’s Austerity Committee is the latest example that the government doesn’t seem too keen to follow own orders. Its latest notification to reduce expenditure seems like a drop in the ocean.
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It is high time that the authorities learn to carry their own weight instead of burdening the already strained populace.
The article does not necessarily reflect the opinion of Business Recorder or its owners
The writer is a Senior Sub Editor at Business Recorder (Digital)
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