Experts, retired bureaucrats and businessmen have suggested National Assembly Standing Committee on Finance to take appropriate measures, including provision of incentives to exporters to reduce trade deficit, facilitating civil servants to improve their working, removal of business irritants and practical implementation of one-window operations, to reduce tax gap and attract new businesses and investors.
On the request of National Assembly Standing Committee on Finance, sector experts, retired bureaucrats and businessmen on Tuesday submitted their suggestions before the committee on improving overall economic situation of the country.
Chairman of the committee Qaiser Ahmad Sheikh strongly criticized imposition of regulatory and anti-dumping duties and sought viable suggestions from experts to improve economic situation of the country. The purpose of the whole exercise was to collect some viable suggestions for the revival of economy.
Saeed Ahmad Qureshi, a retired bureaucrat, suggested that legislation must have sufficient institutional backing for the purpose of economic analysis and research. Secondly, the government policy should focus on removal of business irritants for expansion of existing businesses and attracting new businesses. The continuation of the economic polices is also needed for restoring investor confidence.
He suggested the committee to follow the World Bank's latest ratings on ease of doing business. The finance committee can follow the World Bank's report on ease of doing business to see areas which need improvement in Pakistan and suggest measures to the government. The committee can pick one or two areas of ease of doing business and analyze them in detail for improving business environment of the country, Qureshi said.
He suggested that the NA Standing Committee on Finance should undertake a study on one-window operations which is still not implemented in the country. The implementation of the one-window facility for businessmen and investors is still missing. A study should be conducted to learn lessons from the experience of one-window operations.
Former FBR Chairman Abdullah Yusuf described fiscal deficit as most critical issue of the economy. He said that both the expenditure and revenue sides need to be improved to check fiscal deficit. He said sick public sector enterprises are consuming Rs 500 billion annually, causing huge losses to the national kitty. However, privatization plan has not been implemented. The issue of circular debt has resurfaced again despite the fact that a huge amount was paid in the past.
On the revenue side, Abdullah Yusuf suggested that two major issues of tax gap and tax policy need to be addressed. At present, there is a tax gap of 79 percent which needs to be brought down. During the last survey conducted by the Federal Board of Revenue (FBR), tax gap was estimated at around 79 percent. "If we have to achieve the revenue collection target of Rs 4,013 billion in the current fiscal year, there is an estimated tax gap of Rs 3.1 trillion."
The tax gap of 79 percent is due to the reason that bulk of the economy is cash and undocumented. This can be effectively be checked through systematic automation with the help of common identifier ie computerized national identity card (CNICs). All CNIC-based economic activities can easily be documented through automation. The CNIC is used to carry out all kinds of transactions including banking transactions, utility services and buying/selling activities and documentation of such activities would reduce the tax gap.
He referred to the best international practices where debit and credit transactions at banks have been documented and shared with the tax department of that country. He specifically mentioned Chile where tax system is so strong that the taxpayers receive draft returns one month prior to filing of returns due to strong automation.
About tax-to-GDP ratio, he said the tax-to-GDP ratio of Pakistan is around 11 percent which needs to be improved. Taking tax-to-GDP ratio to 50 percent is not possible, but it could be taken up to 25 percent. For this purpose, the tax gap needs to be narrowed down.
On the tax policy side, he referred to the manufacturing, services and agriculture sectors where contribution in taxes is less as compared to their contribution in the GDP. A policy decision is needed at the top level to increase tax contribution in the manufacturing, services and agriculture sectors, he added.
Shabir Ahmed from private sector underscored the need for improving the quality of civil servants in the country. The areas like training, compensation, performance management, etc, need to be examined with a view to improving quality of civil servants in the country. He was of the view that country's trade officers are required to play their due role in attracting investment into the country.