Federal Board of Revenue Member Inland Revenue Khawar Khurshid Butt said on Thursday the government was examining budget proposals threadbare to impose Gross Asset Tax (GAT) or a Minimum Alternate Tax (MAT) on assets in coming budget (2011-12).
On the conclusion of the pre-budget seminar organised by the Association of Chartered Certified Accountants (ACCA) here on Thursday, FBR Member IR said that the government is examining two kinds of taxes on assets ie Gross Asset Tax (GAT) or a minimum alternate tax (MAT).
The FBR is examining GAT as well as MAT, but nothing has been finalised in this regard. Both the proposals are being analysed for levying some kind of tax on assets to give a clear message to the general public that the government is determined to impose taxes on wealthy people.
The FBR is also ready to bring agriculture income into tax net in consultation with the provinces but ultimately it is the question of political economy and the political leaders and Parliament to take final decisions on such key subjects. "There is no other option but to broaden the tax base in order to ensure equitable and fair taxation system. If the provinces render collection of tax on agriculture related powers to the FBR then the political masters and the Parliament have to take final decision," he added.
FBR Member IR further stated that generally speaking the government does not want to impose any kind of heavy taxation on the general public keeping view inflation and problems of masses in the current economic situation. He admitted that there is a general perception among the masses that the government has not imposed heavy taxes on the elite class.
The government is exploring different avenues to take steps for taxing assets of wealthy class. However, it is yet to be determined that what kind of taxation measures would be taken by the government on the wealthy class of the society. During the budget preparation exercise, the FBR is seriously thinking on the lines to impose some kind of tax on assets of wealthy persons to satisfy the general public, who is already burdened with indirect taxes.
He said that the fiscal deficit beyond 6 percent of GDP required the need to focus upon mobilisation of revenue sources as tax gap showed that the contribution of various sectors into the national economy did not match with their share on taxation side. The services sector was contributing 53 percent in the GDP but its share in taxes was just less than 23 percent and the same is the case of retailers keeping in view their contribution in annual GDP growth.
Talking about the expenditure side, he said that almost 17 percent collected revenues were spent for meeting defence requirements while social sector spending was just negligible in the range of one to two percent. Responding to a query, he said that the FBR will be able to reach Rs 130 billion for the month of April 2011 after compilation of final figures.
Referring to the Chief Commissioner conference, Khawar Khurshid Butt said that the FBR Chairman has directed the Chief Commissioners to submit a work plan within 1-2 days to submit a work plan about the current demands created and recovered. The Chief Commissioners would also submit the numbers about the exact income tax demands to be recovered in the remaining months of current fiscal.
The Chief Commissioner conference also discussed the issue of cleansing of NTN Master Index. Out of 3.1 million NTN holders, the actual return filers are less and the committee on the cleansing of NTN Master Index would also determine the actual dormant companies and inactive units, which have closed down their businesses. The committee headed by Chief Commissioner Inland Revenue (IR) Large Taxpayer Unit (LTU) Lahore Khalid Aziz Banth has drafted a standing operating procedure (SOP) which has been distributed among the Chief Commissioners.
FBR Member IR was happy to share that over 60 percent of the Regional Tax Offices (RTOs) have achieved the sales tax and federal excise duty targets and some RTOs have even surpassed the targets. About the formula for working out revenue target for next fiscal, he said that the tax projection of Rs 1952 billion for 2011-2012 was done on the basis of calculations that the FBR would be able to collect Rs 1588 billion by the end of June 2011. Other factors taken into account included 15 percent inflation, growth of 3 percent and budgetary and enforcement measures to be taken in next fiscal year.
When asked about seizure of bank accounts of different companies, he said that the bank accounts of Pakistan Telecommunication Company Limited (PTLC) were seized for recovery of sales tax arrears. The FBR has recovered Rs 4 billion from the PSO and another Rs 4-5 billion would also be deposited by the unit.
He said that the Large Taxpayer Unit (LTU) Islamabad has approached the Ministry of Petroleum and Natural Resources to pursue recovery of income tax against the oil and gas exploration companies. In this regard, the Chief Commissioner has contacted the Secretary Petroleum to ensure recovery of the income tax demands against the oil and gas exploration and production companies.
Earlier, addressing the ACCA seminar, Khawar Khurshid Butt stated the budgetary proposals pertaining to taxation of real estate and capital gains are being examined at the level of the FBR. Referring to the Revenue Advisory Council (RAC), he said that the RAC comprises experts from private sectors - Arshad Zuberi and Syed Muhammad Shabbar Zaidi. The proposals of the RAC have been given due consideration by the government.
Portraying a realistic picture of the tax culture in Pakistan, he admitted that it is not possible to suddenly introduce a revolutionary tax system, which is not practically possible. Keeping in view practical difficulties, it would not be appropriate to make tall claims of broadening of tax-base. About the taxation of agriculture sector, he said that the imposition of the agriculture tax would be the decision of the Parliament.
The FBR is the only tax collecting agency, and if the Parliament takes decision, the federal government would be in a position to impose agricultural income tax. At the time when economic recession is being witnessed across the globe and we talks about the equitable tax system, it would be very difficult to keep such a large segment of agriculture sector out of the tax net.
The government has gradually started taxation of the agriculture sector through issuance the Presidential Ordinance and withdrawal of notifications to impose sales tax on fertilisers, pesticides and tractors. In this way, the agriculture sector has been gradually brought into the tax net. Despite spending of Rs 6 billion on reforms, I am not satisfied with the results of the reforms in the tax administration, he remarked.
About the Universal Self Assessment Scheme, FBR Member IR said that the USAS was introduced with confidence that taxpayers would voluntarily file their correct income tax returns. However, the USAS has backfired and people had misused the self assessment scheme due to weak audit. There was a trust on the taxpayers that the people would themselves correctly file their returns and no question would be asked from the filers of income tax returns. Instead of witnessing any increase in income, some taxpayers started declaring low income, reflecting misuse of the USAS.
Khawar Khurshid Butt said that the enforcement has been improved at the level of the field formations. For example, the restaurants in Islamabad are ready to pay 200-300 percent more taxes due to effective enforcement and compliance. He further said that the Parliament has the legal authority to equip the Board with maximum enforcement powers to freely take action against the big tax evaders and dodgers without any fear. The FBR can also take major enforcement steps against big evaders on the pattern of Indian tax authorities.
However, the Parliament has to empower the FBR with such laws to enable the Board for taking stern action against evaders without any pressure. The FBR is a tool, which is in the hands of the Parliament. If Indian tax authorities are empowered by their parliament to take actions against tax evaders, our Parliament could also use FBR as an effective tool for taking actions against the violators of the tax laws.