LAHORE: Chairman Federal Board of Revenue (FBR) Rashid Mahmood Langrial has agreed with Lahore Chamber of Commerce and Industry President Mian Abuzar Shad that sales tax, corporate tax and income tax rates in Pakistan are considerably high and should ideally be reduced.
However, he said that such reductions are only possible when the taxation system effectively captures revenue from all segments of the economy.
The FBR chairman was addressing a meeting at the Lahore Chamber of Commerce and Industry. LCCI President Mian Abuzar Shad, Senior Vice President Engineer Khalid Usman, Vice President Shahid Nazir Chaudhry, former LCCI presidents Mian Anjum Nisar and Muhammad Ali Mian, former Senior Vice President Ali Hussam Asghar, former Vice Presidents Tahir Manzoor Chaudhry and Haris Atiq also spoke on the occasion.
Rashid Mahmood Langrial said that Pakistan’s current tax-to-GDP ratio stands at 10.3%, which is significantly below the required level. He underscored that the sales tax-to-GDP ratio is just 3%, whereas it should be at least 5%. He revealed that there exists a gap of PKR 3.1 trillion in sales tax collection and PKR 2 trillion in income tax collection.
FBR collects Rs837bn tax in Nov
The FBR Chairman said that Pakistan has around 67 million employed or job-seeking individuals. Among them, the top 1% of earners, estimated to be 670,000 individuals, should contribute significantly to income tax.
However, only 200,000 individuals are paying the correct amount of taxes, while many others are either under-filing or avoiding their fair share. If accurately taxed, the potential revenue from these individuals could amount to PKR 1.7 trillion.
He said that to stabilize the economy, Pakistan’s tax-to-GDP ratio must be increased to 14%. He said that the FBR has introduced a Transformation Plan to enhance efficiency.
“With government support, the FBR is undergoing reforms and restructuring and soon it will emerge as a significantly improved institution,” he added.
The FBR chairman also shed light on the positive developments, such as an increase in formal imports in November and the reorganization of the Customs Enforcement Wing. He said that in the past, around PKR 35 billion in tax refunds were issued annually for fast-track cases but in the current month alone, refunds worth PKR 70 billion have been disbursed.
LCCI President Mian Abuzar Shad said that the business community is willing to pay taxes but overly complex tax system is a major obstacle to expanding the tax net. He expressed concerns over issues like frequent audits, the FBR’s access to bank accounts and surcharges, which discourage businesses from formalizing their operations.
Mian Abuzar Shad presented data highlighting the FBR’s collection in the fiscal year 2023-24, which stood at PKR 9,311 billion. He said that direct taxes were PKR 4,530 billion, Customs Duty PKR 1,104 billion, Sales Tax PKR 3,098 billion and Federal Excise Duty PKR 577 billion.
He said that despite the business community’s significant contribution to tax revenue, the targets for the current fiscal year — set at PKR 12,970 billion —appear unrealistic. The breakdown of these targets includes PKR 5,512 billion in direct taxes, PKR 1,591 billion in customs duty, PKR 4,919 billion in sales tax and PKR 948 billion in FED. Mian Abuzar Shad further highlighted that the FBR is already facing a shortfall of PKR 344 billion.
The LCCI president suggested simplifying the tax regime and promoting awareness about the benefits of entering the tax net. He urged the government to ensure policy consistency to foster confidence among businesses and improve economic conditions.
Senior Vice President Engineer Khalid Usman added that Pakistan’s tax-to-GDP ratio remains one of the lowest compared to regional economies.
Copyright Business Recorder, 2024
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