Move thwarted: Govt stumbles in drive to increase burden on taxpayers

Member­s of adviso­ry body call for wideni­ng the tax base instea­d.

ISLAMABAD:

The core advisory group on taxation has resisted plans to increase tax burden on existing taxpayers, in first such opposition to a government’s drive to meet a key condition for the next bailout programme of the International Monetary Fund.

The opposition from members of the Tax Reforms Coordination Group, a consultative body headed by Finance Minister Dr Abdul Hafeez Shaikh, reflects the challenges that the outgoing government and the new one will face in meeting conditions for a new programme, being negotiated to avert a balance of payments crisis.

TRCG held its first meeting here on Wednesday to deliberate on proposals for the upcoming federal budget 2013-14, marking the start of preparations for the new budget, which will be tabled in parliament by the new government.

A TRCG member told The Express Tribune that private members of the group objected to increasing the tax burden on existing taxpayers. Instead, they suggested that the tax base could be broadened by ensuring compliance with the laws.



The group once again advised the government to bring an end to the presumptive tax regime, under which affluent classes were provided a safe haven with a nominal tax on their incomes running into billions of rupees.

This is the third successive year when TRCG is seeking elimination of the presumptive regime, which has created loopholes in the taxation system.

Besides the presumptive tax, zero-rating of taxes gives another safe passage to those who only file tax returns and do not pay taxes. Statutory regulatory orders (SROs) are also used as tools to give benefits to the selected few.

Another official said TRCG also discussed the possibility of gradually doing away with the zero-rating facility and levying taxes in phases to avoid a backlash from existing beneficiaries.

In the recently concluded parleys with the IMF for the new bailout programme, the Washington-based lender asked the government to devise a plan, which will put less emphasis on administrative measures and require more policy action like bringing untapped sectors into the tax net and increasing tax rates where necessary.

Some of the tax measures are expected to be undertaken in a couple of months, particularly where exemptions are granted through SROs.

Under the IMF recipe, Pakistan needs to increase its extremely low tax-to-GDP ratio by at least one percentage point every year. For boosting tax collection, the IMF has agreed that Pakistan can rely 20% on administrative measures while the rest of the revenues should be bagged through enforcing policy measures.

According to a handout issued by the Federal Board of Revenue (FBR), its Chairman Ali Arshad Hakeem, in the TRCG meeting, briefed the finance minister about various proposals prepared by the FBR for the budget.

Shaikh asked members of the group to structure their proposals in line with the objectives of practicality, expansion of business and economy, reduction of trade barriers and restricting smuggling.

He also underlined the need for stepping up momentum of revenue collection to achieve the target.

TRCG also discussed proposals pertaining to tax registration scheme, Alternate Dispute Resolution Committee, input tax scheme, sales tax input adjustment relating to unregistered persons and withholding tax and federal excise duty (FED) rates to facilitate businesses.

Published in The Express Tribune, January 24^th, 2013.

Like Business on Facebook to stay informed and join in the conversation.