Govt asked to tax real estate, retailers

High-profile body against putting more burden on sectors already heavily taxed

KARACHI:

Mian Muhammad Mansha, one of Pakistan’s richest persons, on Wednesday advised the government to tax the real estate sector and retailers, the two areas that have been given preferential treatment at the expense of industrialists and salaried class.

The suggestion was made in the first meeting of a committee constituted months ago by Prime Minister Shehbaz Sharif to find avenues for revenue mobilisation.

Mansha and Mohammad Ali Tabba, who were the only private-sector members of the high-profile committee, were of the view that the government should not put any more tax burden on sectors that were already heavily taxed, according to participants of the meeting.

The huddle was presided over by Finance Minister Ishaq Dar. Other members of the committee are Special Assistant to the PM (SAPM) on Finance Tariq Bajwa, SAPM on Revenue Tariq Pasha, Reforms and Revenue Mobilisation Commission Chairman Ashfaq Tola and Federal Board of Revenue (FBR) Chairman Asim Ahmad.

The committee asked private members, who featured among Pakistan’s richest persons, to give their recommendations in writing. They recommended to the government to increase the share of services in tax collection by taking provinces on board.

Tabba was among those who met with Chief of Army Staff General Asim Munir along with finance minister on Monday. However, the businessmen’s meeting with the army chief has not been taken in good spirits as it is tantamount to dragging the military into economic affairs and undermines the role of finance minister.

The PML-N government has always had a soft corner for traders, who are considered its strong supporters. In the budget, the government imposed a fixed tax of Rs3,000 per month on retailers, which former finance minister Miftah Ismail withdrew last year while giving in to the pressure exerted by Maryum Nawaz Sharif.

The government had got special powers in tax laws to collect due taxes from the traders. But it never exercised those powers.

The coalition government again imposed Rs170 billion in taxes on people but did not touch the realty sector and traders, who are heavily under-taxed.

The private committee members encouraged the government to tax real estate and ensure that the sector did business only through banking channels.

The powerful committee’s terms of reference clashes with the Reforms and Revenue Mobilisation Commission, which is already working on a plan to expand the extremely narrow tax base. The duplication of work was highlighted by a government member in the committee.

Besides, the FBR has been struggling to expand tax base and is heavily focused on those who are already paying taxes. All its efforts to bring more people to the tax net have not proved fruitful yet.

During recent negotiations, the International Monetary Fund (IMF) has increased the FBR’s tax collection target to Rs7.640 trillion after the imposition of mini-budget. Even if the target is met, tax-to-GDP ratio will remain low at 9%.

Despite enforcing the mini-budget and steep currency devaluation, the FBR could not narrow tax shortfall that came in at Rs212 billion in the first eight months of current fiscal year. The shortfall was in relation to the old annual tax target of Rs7.470 trillion, which has now become irrelevant after the mini-budget.

As a whole, sales tax has remained the weakest area for the FBR. The collection of sales tax amounted to Rs1.7 trillion in eight months (Jul-Feb) of FY23, Rs138 billion less than the target. In a major failure, the FBR was not able to reap the benefit of 28-30% inflation rate.

The tax collection in Jul-Feb FY23 was higher by a mere Rs26 billion than last fiscal year’s receipts, putting a question mark over the performance and efficiency of the revenue board.

The salaried class has been made to suffer due to the preferential treatment meted out to the retailers and real estate sector. Even the IMF has failed to bring the retailers to the tax net and was happy with measures like the increase in GST rate from 17% to 18%.

Published in The Express Tribune, March 9^th, 2023.

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