Taking measures and then backtracking

Lack of political will, pressure meant tax net was not widened.

KARACHI:

In the Finance Act, 2013, the government introduced various tax measures in a bid to increase documentation and widen the tax net but gradually backtracked in almost all of them, irking existing taxpayers especially the corporate sector.

Perhaps what irked that sector the most was the amnesty scheme the government introduced in December 2013 that was going to be effective from January 2014 for two-and-a-half years. This scheme further cemented the already prevalent ill feeling among taxpayers that the government lacks political will and is finding it difficult to take on the powerful that lie outside the tax net.

The government introduced four important documentation measures including waiving the condition of CNICs/NTNs’ submissions, addresses of unregistered retailers, reducing the penalty for non-filing of returns, and major changes in law on mandatory filing of wealth statement and restraining tax officials from accessing bank accounts of existing taxpayers.

However, succumbing to the pressure of powerful business lobbies, the government took back or amended all these measures within the first five months in office.

Tax experts and economists believe the weakness shown by the government ultimately helped the powerful who once again succeeded in staying out of the tax net.

“The government has failed in the last 10 months in enforcing tax measures. Tax evaders have no fear of the Federal Revenue Board (FBR), which is the biggest failure,” Dr Ikramul Haq, a tax consultant, told The Express Tribune.

In fact, Haq said, the performance of the Sindh Revenue Board (SRB) is much better than its federal counterpart in enforcing tax measures that is evident from its rising collection. According to Haq, the SRB has recently collected Rs732 million in just 11 days of introducing a tax amnesty scheme, while the FBR collected only Rs88.7 million in the tax amnesty scheme it introduced five months ago in December 2013, he added.

Haq was of the view that the government should have stuck to its position of introducing and then implementing new tax measures if it was interested in expanding the shrinking tax-to-GDP ratio.

According to Haq, the government introduced 80 statutory regulatory orders (SROs) this year, giving tax exemptions to the wealthy people owing to which the economy was losing Rs500 billion every year. However, he added that the government wants to gradually get away with the SRO culture within the next three years.

Dr Kaiser Bengali, a left-leaning senior economist, said the problem is not simple.

“Apart from the lack of political will in the government and its machinery, the state and powerful business lobbies are also not willing to pay taxes,” said Bengali.

When the government backed off from its commitment to bring more people into the tax net and withdrew new tax measures, the corporate sector was visibly irked.

Leading industries that received incentives in different duties were textiles, sugar and poultry.

Protesting against the govt

Associations representing the country’s corporate sector say that they registered a strong protest when the government amended or withdrew new taxes introduced in the Finance Act 2013.

“We conveyed our strongest reservation on the withdrawal of the new tax measures that the government introduced in budget 2013-14. This is unacceptable for documented businesses who pay all taxes to the government,” a chief executive of a multinational said while requesting anonymity.

In its annual report 2013, the Overseas Investors Chamber of Commerce and Industry, an association of over 190 multinationals operating in Pakistan, said that apart from raising other issues with the FBR, the organisation “expressed its strong reservation on tax amnesty schemes in any form or shape as it is a disincentive to the honest taxpayer”.

According to tax consultants and economists, the OICCI, whose 190 members pay about one third of the total tax collections of the FBR, reserves the right to protest on amnesty schemes regularly given to the undocumented sector of the country.

“Multinationals operating in Pakistan pay huge taxes and this is unjust with the honest taxpayers when the government gives amnesty schemes to people who know that they would eventually evade the government machinery at the end,” Bengali stressed.

Similarly, Haq said the corporate sector’s stance is justified. “The corporate sector pays heavy taxes in Pakistan while the share of semi-documented and undocumented sectors is not increasing because of the failed policies of the successive governments.”

Published in The Express Tribune, May 26^th, 2014.

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