Giving fiscal incentives to develop a certain geographical under-developed area or attract investment in a desired sector have been a time-honoured tool. A five-year holiday or exemption from income tax as well as customs duty on imported machinery have been the means to achieve the desired objective. It does lead to the heart- burning of companies located in non-tax exempt areas or a sector having already established units. In order to create an even playing field the government of the day has had to play the role of a neutral umpire when competing interests agitate for and against it. There is no simple solution. However, clarity of purpose should be the motivating force for the decision rather than the clout of the investor which usually has been the norm so far.
Withdrawal of authority to issue Statutory Regulatory Orders (SROs) from the Federal Board of Revenue (FBR) and confine it to the Parliament has been demanded by the International Monetary Fund without appreciating the ground realities of this country. Even when the power vested in the FBR it was in fact the Minister of Finance - the ultimate authority since the Revenue Division is under his ministerial control.
The government has only transferred the powers to issue SROs to the Economic Co-ordination Committee (ECC) of the Cabinet; however, the ECC decision needs to be ratified by the parliament within a year. The constitution declares the elected parliament to be the sovereign. In fact, it is the dominant party or coalition in National Assembly - having the majority - which has been elected to form a government. Thus, an elected government enjoys the power to levy any tax but is also responsible for its collection. A government which cannot impose tax and then collect the same does not deserve to be in power because it compromises the country's independence. We were told that the country has to take loans and aid for development needs, albeit temporarily, to bridge the gap between its needs and resources. But in fact our growing reliance on aid and loans continues even after 62 years as the gap between our needs and resources continues to widen.
PML-N has done well in the Finance Bill 2015 to draw a distinction between tax filers and non-filers. Past trends show a strong tendency of government's revenue collection falling short of budgetary targets. And, expenditures overshooting in a fiscal year is reflective of supplementary grants demanded for the outgoing year by the Minister of Finance after the money has been spent. Nothing has changed and is not likely to change. We are only fooling ourselves, thinking we are fooling our lenders if we continue to park our liabilities elsewhere. Some day these liabilities will need to be accounted for. And, then we will know the real extent of deficit. Additionally, in order to show the fiscal deficit closer to the target agreed with the Fund, we persist to slash the development programme without realising that it is the main factor behind lower growth.
Economic recovery continues to be fragile and economy is still not strong enough to withstand any kind of major shock. It was foolish not to pass through the impact of the 2007 international oil price as crude oil prices soared to nearly $150 per barrel. As a result, our forex reserves suddenly dwindled from 16 to 10 billion dollars and we had go running, once again, to the IMF for help in 2008. Energy shortages continue to haunt us while political unrest still persists. Inflation has indeed come down - with no contribution from our economic planners - mainly on account of exogenous factors. A slowdown in rising food prices and impact of softening of commodity prices, including oil, is apparent in the energy sector. Textile sales are down and power breakdowns continue to be a daily feature. A dampened demand, both internationally and domestically, is the constraint for a fall in net margin in cotton-based textiles. However, power sector has remained under pressure due to lower utilisation of capacity because of an archaic transmission and distribution system amid build-up in trade debts. The future outlook of energy sector as a whole is greatly dependent on resolution of circular debt and investment in early realisation of energy projects under the China-Pakistan Economic Corridor (CPEC) which envisages, among other things, Chinese help in producing over 20,000 megawatts of energy. Therefore, it would be foolish to levy taxes on projects that would help in realisation of desirable goals. Imposition of minimum tax or alternate corporate tax on desirable projects is not the right answer. The government and its revenue collection arm must take cognisance of this. Advance rulings from FBR presently restricted to non-resident investors need to be extended to resident investors as well. Advance rulings should not be crafted as a means for enhancing revenue but for interpretation of existing laws. Businesses may have fallen sick due to overload of bank credit through over-invoicing of capital assets. However, there have been cases of businesses going under because of sudden legal changes in taxation as well. As such, we need to have an estoppels or a legal principle that bars a party from denying or alleging a certain fact owing to the party's previous conduct, allegation or denial on Letters of Credit opened and contracts already concluded. Companies rightly demand continuity of governmental policies - during the life-time of a project - as their feasibility, inclusive of cash flow, is greatly dependent on it. What if there is nothing wrong with their demand?
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