Taxes galore

From petroleum products to luxury items, govt seem to be falling in habit of increasing tax rates to enhance revenue

The government has increased tax rates on a wide range of products, including imports, professional services, luxury goods and furnace oil, in a move that once again exposed the inability of authorities to meet revenue collection targets. The decisions were made at a meeting of the Economic Coordination Committee (ECC), and are meant to meet promises made to the IMF, which included a revised annual tax collection target of Rs2,691 billion. The new taxes are meant to pave the way for the next loan tranche of $518 million from the international lender. In September 2013, the IMF approved a three-year Extended Fund Facility (EFF) for Pakistan that would see the country pledge to undertake economic reforms, liberalise the trade regime and privatise or restructure loss-making state-owned entities. Since then, the government has set forth an ambitious privatisation agenda that has seen it either sell or attempt to sell its stakes in public entities. It has also raised money through Sukuk offering and foreign grants, improving the foreign exchange position. The slump in global oil prices has also provided the ideal opportunity for the government to increase the GST rate without inviting too much backlash.

However, now the imagination of our economic managers seems to have dissipated as their strategy now seems to be about increasing tax rates every time they hold a meeting. From petroleum products to luxury items, from withholding taxes to import of furnace oil, the authorities seem to be falling into the habit of increasing tax rates to enhance revenue. A higher tax for those who do not file tax returns was imposed in the fiscal budget, which was meant to enhance the tax base. However, data shows the number of filers, ironically, went down. Additionally, the government seems to have forgotten that withholding taxes are supposed to be liabilities that it has to pay when returns are filed. It also seems to be satisfied in slapping taxes through SROs — without parliament’s approval. Despite the commitment to the IMF to abolish the SRO regime, the authorities continue with this folly and are literally going through a process of ‘pick and choose’ regarding the promises they want to keep. Imposing taxes without parliamentary approval deserves criticism, with there being little justification for the government’s latest actions.

Published in The Express Tribune, February 12^th,  2015.

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