Structural reforms in the tax system are imperative to achieve macroeconomic stability in addition to improving the financial position of Pakistan, said Engineer Ahmad Hassan Former Vice President Faisalabad Chamber of Commerce & Industry (FCCI) and Chairman FCCI Standing Committee on R&D.
Talking to newsmen here on Tuesday, he said that Pakistan is currently facing a crisis in balance of payments with high fiscal and current account deficits which needs to be addressed in order to avoid a financial crisis in the near future.
Commenting on the IMF report, he said that Pakistan's current account deficit has increased to 4 percent of GDP in fiscal year 2016/17, which could be further widened in the first half of fiscal year 2017/18. "The main reason for this situation has been identified an increase in imports owing to strong domestic demand, implementation of import intensive CPEC investment projects and rising oil prices", he added.
He said that the overall fiscal deficit widened to5.8 percent of GDP in FY 2016/17. However, growth in revenue collection is over 20 % on year on year basis while FBR helped to limit fiscal deficit to 1.2 percent of GDP in the first quarter of 2017/18 as compared to 1.3 percent of GDP in Q1 of FY 2016/17.
He told that the external debt of the country has increased rapidly in the past 4-5 years. "It jumped from Rs 5.7 trillion in 2013 to 8.9 trillion in September of this year as per data issued by the State Bank of Pakistan", he said and told that according to estimates the total external debt is expected to increase to $ 103 Billion in 2019 and $ 144 Billion in 2023 if the current pattern of borrowing continued.
"Government needs to focus on increasing the tax base to achieve fiscal consolidation in the medium term in order to avoid taking additional debt", he said and added that as per data of FBR, only 1.26 million individuals filed income tax returns for the tax year 2017. This means that only around 0.6% of the 207 Million population filed income tax returns. He said that around 92 million cell phone users paid 12% advance adjustable income tax in 2017 which means that the number of people who filed income tax returns was only around 1.3% of these. In order to increase the tax base, the government should use data of electricity and gas consumption available with the relevant departments, and those found unregistered having considerable consumption of these utilities must be brought into the tax net.
He said that steps should also be taken to bring unregistered businesses and those working a part of the shadow economy into the tax net. "Special teams should be formed to conduct regular surveys in different areas, particularly the key marketplaces and business centers to identify unregistered businesses", he added. Engineer Ahmed Hassan told that total number of companies registered with SECP reached a level of 84,201 by the end of November 2017. However, out of these registered enterprises less than 30,000 filed income tax returns. He said that FBR should initiate immediate action against the registered enterprises which are not filing income tax returns.
He said that government should also look into improving the pay structure of FBR officials working at local levels and introduce performance based incentives to increase their motivation to work efficiently. "In addition to increasing the tax base, it is also very important to eliminate the trust deficit between the working population and the government in order to create a tax paying culture and mindset", he said and added that the government should introduce reforms at the national and provincial levels to eliminate the problem of corruption from all public sector organizations.
He said that the government should also ensure that the money collected from taxes is spent in an efficient and prudent manner on projects which are most needed by the people in order to enhance the confidence of the general public towards the government. Similarly, tax reforms are also needed to be introduced at the provincial levels in collaboration with the federal government. "There is a need for census-based baseline of provincial tax bases and improving coordination between federal and provincial tax authorities", he added.
He told that FCCI is working in this regard to prepare comprehensive recommendations for tax reforms in the country, which will be presented upon completion to the Ministry of Finance.
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