The Federal Board of Revenue (FBR) is facing a record shortfall in revenue collection in its history. It is certainly a bad news for Pakistan and the government, which has already been struggling to put its act together to face the daunting economic challenges.
Tax collection has remained a challenge successive governments have failed to meet. Major reasons include the absence of necessary structural reforms to narrow the gap between our revenues and expenditures.
Before coming to power, the Pakistan Tehreek-e-Insaf (PTI) used to make tall claims of reforming the tax machinery.
The current Finance Minister Asad Omar has been the strong proponent of doing away with indirect taxes. Now at the helm for over six months, the PTI government has done hardly anything that gives the sense of change. In fact, many people have already started saying that the PML-N’s tenure was better.
And they might be true given how the PTI government has so far handled or mishandled the economy.
Only recently, the National Assembly approved the second mini-budget presented by the PTI government. In the supplementary budget, as the government would call it, new tax measures were approved. One of those measures is the imposition of 10 per cent additional Federal Excise Duty (FED) on the locally-manufactured cars of 1700cc and above. The imposition of FED would be in addition to the General Sales Tax (GST) and other duties car buyers pay.
The decision has immediately shot up the car prices between Rs280,000 to Rs70,0000. One of the leading automobile manufactures put out a public notice to give a break-up of taxes. For example, the price of Toyota’s top of the line Sedan in Pakistan called Grande is now Rs3,298,900.
This includes government taxes worth Rs735,652. And this does not include withholding tax, car registration fee and token tax as well as other charges that a buyer may have to pay. So, there are half a dozen taxes a buyer has to pay on the purchase of new vehicle, which is principally wrong given the fact that the practice of double taxation is considered immoral and illegal.
The government has defended the new measure by suggesting that since 1700cc and above vehicles are driven by rich and affluent class, the imposition of additional taxes are justified. But that’s the real problem.
The question here is not whether you are rich or poor but whether you are a law-abiding citizen paying your taxes or not. For example if a rich person files his tax return and comply with all laws, should the state reward him or punish him? Had the government imposed 10 per cent FED and additional taxes only on those who did not file tax returns, the decision would have made a lot of sense. But the government has imposed the duty irrespective of one being a filer or a non-filer. Then what’s the benefit of filing tax returns?
Importantly, these measures will not only further deepen the mistrust between the state and law-abiding citizens but also send a wrong message to foreign investors, particularly new entrants in the automobile industry.
The new players will invest in Pakistan only when the prices of their products attract the wider population. But that is not possible if the government takes the lion’s share in the form of imposing multiple taxes.
No one can disagree with the fact that Pakistan needs to enhance its tax-to-GDP ratio. But how that is done is the real challenge. The government of Imran Khan needs to understand the difference between tax and extortion.
Many of the government’s recent tax measures are nothing but forcing law-abiding citizens to pay extortion. That’s not the way democratic governments operate.
Published in The Express Tribune, March 25th, 2019.
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