ISLAMABAD: With the government borrowing over Rs3 trillion from the central bank last year to bridge revenue shortfalls, economic experts on Tuesday suggested that the government must focus on improving its revenue stream, particularly through more efficient taxation policies.
This was emphasised by participants of a routable conference titled ‘Mechanism for Effective Revenue Collection in Pakistan: Ways and Means’. The roundtable had been organised by the Islamabad Policy Research Institute (IPRI) on Tuesday.
The roundtable was chaired by former federal secretary for the finance division Dr Waqar Masood Khan, while Federal Board of Revenue (FBR) former chairman Nisar Muhammad Khan, Pakistan’s former ambassador to the World Trade Organisation (WTO) Dr Manzoor Ahmad, State Bank of Pakistan former governor Tariq Bajwa and former FBR chairman Ali Arshad Hakeem were speakers at the occasion.
The speakers said that Pakistan has not had a surplus budget for many years and there was a consensus amongst the participants that revenue collection was one of the best remedies for several economic maladies which plague the country, including the poor tax-to-gross domestic product (GDP) ratio and debt servicing — all of which have marred its already stunted economy.
Good governance, uninterrupted social service delivery, robust infrastructure development and controlled inflation can materialise by broadening the tax base.
Economy is the key issue
In Pakistan’s case, the mounting fiscal deficit was identified as the ‘mother of all evils’. On this end, it was stated that the incumbent government is trying to slash its expenditure but it desperately needs to shore up its revenue collection — which has fallen by a percentage since the last fiscal year — to fully address the budgetary deficits.
Moreover, the targets set for growth are no close to materialisation.
The speakers also highlighted that direct taxes make up only around 34 per cent of the country’s total revenues compared to indirect taxes which were not only generally regarded as regressive but also contribute to low economic growth as it leads to multi-dimensional poverty because it typically impacts the middle and lower strata of society the most.
The challenges the country faces in boosting revenues also stem from its inability to attract investment. The World Bank ranks Pakistan 173 out of 190 countries with regards to ease of doing business. This, however, can be significantly enhanced by incorporating simplicity in the taxation policies, providing a level playing field, especially to small and medium-sized enterprises and cut down on tariffs which can also make goods competitive in the international market.
Analogies were drawn to Chile, Turkey and Vietnam which have faced similar challenges in their economic growth and tax collection structures but were able to bring about a major turnaround to the extent that at the moment Vietnam alone has exports worth $200 billion.
The speakers further suggested that the cash economy must be capitalized upon while sectors such as agriculture and the services ought to contribute much more to the tax base.
SMEs, tax and rewiring obsolete mindsets
Concessionary tax cuts should not only be confined to specific industries but the burgeoning internet economy, which has the potential to add $100 billion to our economy, must be included as well.
The speakers stressed upon the Federal Board of Revenue’s (FBR) capacity constraints to meet the Rs5.5 trillion tax target, largely because FBR has not evolved in line with the country’s financial policy.
It was suggested that the tax body introduce a fiscal register for taxpayers and there is a need for officers to be up-to-date with modern methods of tax collection.
Another recommendation put forward was to conduct data mining to locate new taxpayers with the assistance of NADRA.
The speakers recommended that the modus operandi of tax registration ought to be streamlined and made hassle-free by the FBR, to address the trust deficit between the taxpayer and the tax collector or the government for that matter. The government also needs to modernise the entire process of tax collection and tax refunds, along with limiting discretionary powers of the tax collector and enhancing transparency in the process.
Cost of economic stability
When the average citizen is confident that their tax is not slipping through the crevices in the system, and that they will reap the benefit in the shape of improved infrastructure, healthcare, employment opportunities, there will be behavioural changes in the public, it was stressed.
Enhancement of tax-to-GDP ratio which currently stands at around 10% to 13%, increased revenue collection free of corruption, widening of the tax base was highlighted as key areas of interest to redress Pakistan’s shrinking economy.
Published in The Express Tribune, September 4th, 2019.
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