One of the biggest challenges faced by the country remains the government's inability to establish a lucrative tax base. Not surprisingly, simply looking at the tax process with the right intent is enough to highlight a plethora of issues related to procedures and the tax machinery in general.
This has been noted in a report "Ease of Dong Business 2020 Need for Maintaining An Upward Trajectory" of Karachi Chamber of Commerce and Industry (KCCI) Research & Development Department, the report mention that taxation in Pakistan is a fairly complicated and an inefficient process. Quite often, the process can lead an innocent common man to the point of frustration and deter many others away from fulfilling this civic duty altogether.
In the past two years however, significant improvements have been made by the tax collecting authorities to try and win back the confidence of the country's 206m population. However, progress has been alarmingly sluggish as only 2.5m people filed their returns in TY18.
Not surprisingly, simply looking at the tax process with the right intent is enough to highlight a plethora of issues related to procedures and the tax machinery in general.
*First of all, there is a need to reduce the time and effort it takes for a common man to pay taxes on his own. These procedures need to be simple enough so that someone who can read (English/Urdu) does not have to rely on a tax consultant for a simple 10 minute task.
*One way is to club relevant tax payments together and remove the ones which are either unnecessary or where the government has failed to deliver such as professional tax and educational cess.
*Audit of corporate income tax returns or Value Added Tax (VAT) should be strictly limited to need basis and businesses should not be bothered unnecessarily.
Currently, 50-70% of cases are exposed to a VAT which the authorities should target to reduce to 25%.
*The VAT process should be further streamlined so that by making the payments bi-annually so that the total number of payments is reduced to 2.
*The time taken to obtain a VAT refund should also be reduced to an acceptable level from the current 79 weeks.
*In case of corporate income tax, less than 10% of cases should be exposed instead of the current 25-49%.
*Time to comply with a corporate income tax correction should be reduced from the current 67.5 hours to around 10 hours. Businesses should also be facilitated by reducing the overall corporate income tax rate in addition to introducing electronic systems for employer contributions.
*Although it may seem ambitious at this stage but following even some of the mentioned measures can reduce the time it takes for businesses as well as individuals to pay taxes from 250 hours to a more efficient 150 hours.
Nurturing Entrepreneurship and Implementation
A complicated set of regulations at the starting line of someone's entrepreneurial journey is enough to deter them away from realizing their dream. By getting rid of unnecessary legal formalities and introducing modern policies like the ones mentioned below, the government can at least give a good omen to potential business developers.
• Time taken to start a business can be reduced by around 7 days by simply premising businesses to use their NTN instead of having to register for an STN separately.
• Scope of the recently launched SECP portal should be expanded further to include registration for Sindh Sales for Services, so that time for acquiring approval can be reduced to 1-2 days.
• By automating procedures such as obtaining Letter of Land Title and linking systems of regulators such as the Sindh Building Control Authority with other bodies such as the Registrar Office, around 14 days can be reduced from the process.
• Time and costs related to acquiring construction permits should be reduced, particularly in Karachi where 16 procedures take 134 days to complete. On the other hand, 19 procedures take 108 days to complete in Lahore where it is cheaper as well.
• Costs need to be revised. Cost that needs to be paid to get construction permits in Karachi are just shy of an unreasonable PKR 1Mn.
• A portal should be established allowing approvals from different agencies to be granted at a faster pace. Prolonged delays open ways for corruption and transparency should be ensured at all costs.
• Requesting a copy of property tax valuation and copy of the certificate from the Excise and Taxation Department requires 30 days which should be reduced.
• It should not take 20 days for the KWSB to review and approve a request for water and sewerage connection before the inspection starts. The cost associated with this field should also be reduced from PKR 531,650 to PKR 90,000 like in Lahore.
• Completion certificate from the Sindh Building Control Authority (SBCA) takes 30 days which should be done within a week whereas the current cost should be reduced from PKR 224,000 to less than PKR 50,000 as in Lahore.
• Currently, it takes 9 procedures, 149 days, 4.2% of the property value to register a property in Karachi. Comparing this with Lahore, 7 procedures, only 22.5 days, the same amount of money to register a property.
Hence, procedures need to be automated to reduce the time required to register a property at least to the level of Lahore.
• Single window system for registering property should be developed.
• Reliability of infrastructure, transparency of information, geographic coverage, land dispute resolution, and equal access to property rights should be brought in focus.
• Execution and registration of the deed before the registration authority takes around 120 days. This can be reduced by using innovative technological solutions.
For instance, registration of the deed which follows the execution of sale deed is delivered after a few months. This process can and should be reduced to 15 days as that is the standard set in Lahore.
• New and improved technology should be introduced for better mapping of properties and laws should be clear to avoid property disputers.
• Procedure to obtain NOC from all land owning agencies should be automated and integrated.
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