IMF wants govt to tax the rich

The business community and industrialists have forced FBR not to implement new measures, according to FBR officials.

ISLAMABAD:

The International Monetary Fund (IMF) has sought assurances to implement a plan of withdrawing tax exemptions granted to affluent people as the government buckles under the pressure from industrialists and traders – the traditional vote bank of the ruling party.

The visiting delegation of the IMF has asked Pakistan not to limit its ongoing exercise to just indentifying loopholes created in the tax system to appease various lobbies. It has, instead, sought the government’s concurrence of the plan to withdraw identified exemptions; otherwise Islamabad will have to levy more taxes, according to officials privy to the developments.

Assurances were sought while discussing the first review of the $6.7 billion IMF programme which began early last week and will continue for at least two more days.

In July this year, IMF asked Pakistan to carry out a detailed exercise to identify tax exemptions granted through Statutory Regulatory Orders (SROs) and complete the process by December this year. The identification exercise was a structural condition aimed at ensuring the government was committed.

The FBR is expected to complete the work by end of this month; in December, it would have to seek agreement from ministries of commerce, industry, textile, finance, the Board of Investment (BOI) and the Engineering Development Board (EDB). Exemptions have to be withdrawn from July next year.

Officials said IMF has gone a step further and asked Pakistani authorities to provide concrete assurances that these exemptions would be withdrawn through Parliament from the next financial year.

If the government decides to keep the exemptions, it will have to levy more taxes in order to fulfil a broader condition of increasing tax revenues by 0.75% of the total size of the economy (Rs190 billion at the current size of economy).  The beneficiaries of the SROs are politically well connected, giving rise to fears that it will be difficult for the government to withdraw all of these exemptions, according to FBR officials.

The government’s own track record of the last five months showed that it did not have the mettle to sustain pressure exerted by these people.  Its four major initiatives – broadening the tax base, checking tax evaders by getting access to their bank accounts, filing wealth statements and paying income support levy on movable assets – have not met success.

The business community and industrialists, having a strong backing of the Punjab government, have forced the FBR not to implement new measures, according to FBR officials.

Interestingly, the FBR has not responded to the question of presenting an implementable plan to the IMF. But the plan to withdraw Customs duties exemptions suits the FBR, which is struggling hard to meet its targets, because the imports have significantly plunged, causing a decline in sales tax at the import stage as wells as custom duties.

The IMF programme is also focusing on eliminating exemptions and concessions to gradually move the General Sales Tax (GST) to a full-fledged integrated Value Added Tax (VAT) indirect tax system.

Another FBR study says as many as 86% of the customs tariff lines are currently governed through SROs, which are individual industry specific.

IMF has asked Pakistan that no concession should be governed through the SROs and, if the government wanted to retain any of them, they should be made part of the Customs Tariffs and available to all.

In last fiscal year, the FBR gave Rs119.7 billion worth of exemptions on account of the customs duties, according to the Economic Survey of Pakistan. Except for concessions granted under various bilateral trade arrangements, most of these relaxations were given to specific industries.

Published in The Express Tribune, November 6^th, 2013.