PBC against finance ministry's tax policy role

Says fiscal policy be aligned with long-term industrial and trade policies

KARACHI:

Although the Pakistan Business Council (PBC) has openly welcomed the government’s plans to split the Federal Board of Revenue (FBR) into two entities, it raises concerns over the proposal of keeping the policy-making department in the Ministry of Finance.

In a letter to Caretaker Minister for Finance and Revenue Dr Shamshad Akhtar, PBC Chief Executive Ehsan Malik wrote “the plans you shared propose to retain the (FBR’s) policy role within the finance ministry. Our concern with this is that (revenue) deficit-bridging measures will continue to influence policies.”

“We, therefore, suggest that the policy role be under the ambit of the Ministry of Planning to align fiscal policy with long-term industrial and trade policies within the framework of five-year plans.”

The separation of fiscal policy from tax collection has been a fundamental element of the council’s advocacy work. In the present structure, which combines the two roles, often knee-jerk, short-term and revenue-seeking changes are made, which undermine investor confidence.

Worse still, these revenue-seeking measures target those that are already disproportionately burdened, thwarting the growth of business and the economy, the letter from the country’s leading business advocacy forum read.

“We also note with concern that the policy board will not have taxpayer representation and that the primary goal of policies will be to raise tax revenues.

“We strongly believe that policies should drive growth of business, from which higher taxes can flow to the exchequer. Thus, wealth creation, capital accumulation, consolidation through formation of groups, investment, employment, exports, import substitution and building resilience to climate change should be drivers of tax policies and goals of the policy board.”

It was of the view that taxpayer representation on the policy board would enrich its output. Taxpayers are important stakeholders that should not be ignored. Furthermore, tax targets should encourage broadening of the tax base instead of merely the total revenue raised.

Earlier this month, Finance Minister Shamshad Akhtar shared plans to deploy artificial intelligence and technology to broaden the tax base. “We stress the need to transform talent to use these effectively.” Akhtar met the business community along with the senior FBR leadership to discuss the revenue board’s restructuring.

Read Seven keys to good tax policy

In the letter, the PBC proposed 25 measures to collect higher revenue through increasing the number of taxpayers instead of burdening those who are already paying due taxes. The proposals suggest ways to encourage investment, exports and import substitution, among others.

It urged the government to ensure long-term predictability and consistency to promote investment and emphasised that policy changes should not affect those who invest on the basis of a previous policy; to make revenue from new taxpayers the primary target to promote broadening of the tax base; exclude refundable taxes and advance tax when assessing performance against tax collection targets; remove the disproportionate burden of taxes on a few taxpayers, in particular withdraw super tax, which was billed as a one-time tax when imposed; tax policies should support growth and competitiveness of business, and be aligned with long-term industrial policies.

It recommended that taxes and tax processes should be simple, with minimum personal interface and harassment; to encourage listing and formation of groups by eliminating double taxation of inter-company dividends and facilitating surrender of trade losses; and establish clear order of priorities to promote formalisation and governance.

The order of priorities should be like this – listed companies, followed by non-listed/ private companies, then the association of persons and individuals in business. The PBC called for taxing profit, not turnover; ensuring that the formal sector enjoys more favourable taxation than the informal sector; and supporting the National Tariff Policy to deploy tariffs as instrument of trade policy rather than revenue generation.

 

Published in The Express Tribune, February 6^th, 2024.

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