KARACHI: The Pakistan Business Council (PBC) estimates potential annual tax revenue of Rs. 747bn from wholesale, retail and real estate sectors.

There is also untapped tax revenue potential for provinces of Rs. 372bn from agriculture tax and Rs. 380bn from property taxes.

PBC CEO Ehsan A Malik said that PBC has published Checklist for industrialization in December 2023. Since then energy cost, misuse of FTA/PATA concessions and continuing pressure from high cost of barrowing have become even bigger challenges. The published checklist has been addressed to all ministries directly or indirectly involved in determining policies that affect businesses.

Currently all provinces put together raise just Rs. 3bn from agriculture tax and Rs. 20bn from property tax. Higher provincial tax revenues should help the case for renegotiating the National Finance Award which is unsustainable for the federal government in its current form.

Restore tax credit to incentivize the formal sector to minimize its transactions with the informal sector.

Mine the significant withholding tax data provided on the informal sector Restrict utility connections to businesses that file tax returns Place a maximum limit on use of cash for major purchases. Incentivize use of credit/debit cards and other documented transaction methods.

Promote scale: Fiscal policy should support capital accumulation and scale through consolidation in the form of groups.

Dividends from subsidiaries to the holding company and from the holding company to its shareholders should not be taxed multiple times. This is the global norm and was applicable in Pakistan from 2008 until withdrawn in 2021. Promote wider shareholding by restoring tax credit for stock market listing.

Level the playing field for the incorporated: Taxes should be simple, predictable and supportive of business growth and for formalization of the economy. The aim should be for higher tax revenues to flow from a combination of improved profitability of existing taxpayers and from broadening of the tax base. Industry which represents 20% of GDP presently contributes a disproportionate 56% of taxes. It should be facilitated to create more jobs, boost value-added exports and promote sensible import substitution.

The impact of taxes on manufacturing vs commercial importers and real estate investors should be reviewed, as should the impact on corporate vis-à-vis other forms of business structures, such as Association of Persons. There should also be a level playing field in the holding periods for capital gains tax on sale of company shares vs. real estate. One of the major reasons why those in the informal sector resist joining the tax base is the threat of harassment by the FBR and the complexity of tax returns. Returns should be made simpler and easier to file, using digital means. Also, the fragmentation between federal and provincial taxation and returns should be resolved to make it easier to comply.

FBR tax targets must not be set without creating capacity and capability through technology and fresh talent. Otherwise, the FBR has no choice but to pursue existing tax payers for more revenue.

Separate targets should be set for revenue from existing and new taxpayers. Targets for existing taxpayers should be in line with expected growth in the nominal GDP. The target for new taxpayers should be set in line with the evolving capability and capacity of the FBR.

Tax refunds due should be excluded when assessing performance of the FBR against either of these targets. On the other hand, taxpayers should be allowed to offset assessed refunds against liability for any other type of tax e.g., GST, Excise Duty etc.

The PBC, through its “Make-in-Pakistan” thrust has long advocated industrialization as the means of generating employment, promoting value-added exports and encouraging import substitution in a sensible and sustainable manner. Aside from broadening the tax base, it advocates for additional tax revenue to flow from higher profits of business, not from higher rates of tax or new taxes.

PBC also recommends consensus between political parties and key stakeholders on a minimum set of fundamental reforms. This is essential to provide assurance of continuity and consistency in the policy framework, as also to mobilize additional resources to fund investment in socio-economic development. Pakistan stands at the bottom of South Asia in virtually all socio-economic indicators.

Recently the government has embarked on a fresh impetus to revive industrial growth. This checklist is drawn from the PBC’s more detailed studies available on its web site and its earlier checklist published in May 2021: www.pbc.org.pk. Much of PBC’s advocacy addresses the three platforms of “Make-in-Pakistan”, namely

“Grow More/Grow Better”, “Make More/Make Better” and “Serve More/Serve Better”.

Copyright Business Recorder, 2024