Pakistan’s tax regime is heavily tilted in favour of the elite, says the Tax Reforms Commission (TRC) in its final report and proposed that all perquisites of top office holders, cabinet ministers and judiciary should be subject to tax in order to ensure equity.
The report, which the TRC took almost one and a half year to complete, will now be presented to Finance Minister Ishaq Dar for its application on a fast-track basis.
The TRC also proposed the setting up of a national tax agency besides stripping the Federal Board of Revenue (FBR) of its policymaking role. The findings of the commission highlight serious flaws in the tax structure that is burdening the poor and giving a huge relief to the elite.
“In Pakistan, it seems the poor are subjected to heavy and harsh indirect taxation and the elite are enjoying free perquisites and benefits, including purchase of valuable state-owned plots at prime locations and at throwaway prices,” said the report.
The TRC recommended the government to withdraw tax exemptions for residences of the president, governors and chiefs of staff.
It proposed that perquisites of governors of provinces, chiefs of staff and corps commanders, federal ministers and residences of judges and their allowances should also be subject to tax.
The federal government boasts of withdrawing Rs208 billion worth of tax concessions in the last two budgets. However, almost all of these concessions were indirect and the government has so far protected the benefits enjoyed by the elite in the shape of exemption from income tax.
In its report, the TRC called on the government to bring structural changes in the FBR over the short term and set up the national tax agency in the long run. However, it did not give the structure of the new agency.
“There should be one national agency that should collect taxes on behalf of the centre and provinces,” remarked TRC Chairman Masoud Naqvi.
The report stated that Pakistan could not improve tax collection at the national and provincial levels unless fundamental administrative reforms were introduced.
It said a fully automated, professional and efficient national tax agency would alone be in a position to improve capacity by detecting tax avoidance and evasion through the tax intelligence system.
At present, the FBR is collecting 95% of taxes by imposing more and more obligations on organisations and individuals in the form of withholding tax provisions.
It proposed the establishment of an independent tax policy board in the short term under the auspices of the Ministry of Finance headed by the finance minister with the prime objective of debating and formulating the national tax policy in consultation with the stakeholders on a continuing basis.
The board may comprise eminent economists, professionals and other stakeholders. In order to create a link between the board and the FBR, the FBR chairman could be a member of both the bodies to ensure interconnectivity and ownership of the policy decision.
The TRC said under the current scenario, the FBR played a fundamental role in the formulation of fiscal policies, levy and collection of federal taxes. There is a need to ascertain if there is an inherent synergy in these roles to keep them together in the FBR or separate them to achieve greater focus and improved efficiency. It also called for separating the audit function from the rest of the FBR.
The TRC observed that the tax system was marred by evasion, under-reporting, tax fraud, corruption, smuggling and under-invoicing to name a few. This inequity is also hitting hard the compliant taxpayers.
It said despite efforts for reforms in the past 15 years, the FBR had not been able to make any headway and the collection stood at an even worse level than in 2000 in terms of tax-to-GDP ratio.
Published in The Express Tribune, February 9th, 2016.