Budget matters: Corporates expect government to bolster efforts to broaden tax net

Say uniform tax rate and reduced burden will bring desired results.

KARACHI:

When Nawaz Sharif took over in June last year, his team had only a few days to prepare for the budget. Now that his government is going to complete a year in office and gearing up to present its second budget, the corporate sector’s expectations about renewed efforts to broaden the tax net are running high.

“We know that the government had little time last year to prepare for the first budget. But this time we will be disappointed if the tax net is not widened,” said Overseas Investors Chambers of Commerce and Industry (OICCI) President Asad S Jafar when asked in an interview if he was anticipating any major policy shift.

The OICCI had been consistently asking the government to undertake concrete measures that could lead to a marked increase in tax collection, he said. “We believe the government is cognisant of the big challenge, so we are optimistic.”

According to the International Monetary Fund (IMF), Pakistan’s tax-to-gross domestic product (GDP) ratio for 2012-13 was 9.7% – significantly less than 11.4% recorded in 2002-03.



In response to a question, Jafar said the government’s intention looked positive in publishing the tax directory of all taxpayers, but there was anxiety among businessmen who believed it could compromise personal security of the taxpayers.

“Above all, what is most important to see is how the state is able to increase the tax base,” he said. “Desired results can only be achieved when a uniform tax rate is introduced for all sectors and tax burden is reduced from the corporate sector.”

The corporate class has been voicing its displeasure against Finance Minister Ishaq Dar over giving in to pressure from various business lobbies. It says the government has gone back to square one by allowing tax incentives to one sector after another that had been withdrawn in this fiscal year’s budget.

Jafar said efforts to tackle energy shortages and undertake reforms were going in the right direction, but suggested the pace could be accelerated.

Apart from security and energy woes, the government had to seriously deal with disbursement of tax refunds and bottlenecks in the tax system that discouraged new investors from pouring capital into Pakistan, he said.

Investment plans

Despite the conditions not being very conducive, Jafar revealed that member companies of the OICCI – an association of over 190 multinationals operating in Pakistan – were planning to invest around $3 billion over the next five years.

“This is not a huge figure considering the size of the Pakistan’s economy, but at a time when foreign direct investment (FDI) is at a very low level, it is a very positive sign,” he remarked.

Pakistan attracted $1.44 billion in FDI in the last fiscal year ended June 2013, up 76.4% compared to just $821 million in 2011-12, according to the State Bank of Pakistan.

The corporate sector has been repeatedly drawing the government’s attention to the deteriorating ranking of Pakistan in the World Bank’s Ease of Doing Business Index, which has negative implications for future foreign investment in the country.

Pakistan slipped from 75th place in the index in 2010 to 110 in 2014 and executives point to the complicated tax payment procedure, including provincial and local taxes, as one of the key irritants that affect the country’s standing in the index.

Recently, the OICCI pressed the Sindh government to show political will and collect taxes from those sectors that were not paying their share, especially the agriculture sector, which came within the purview of provinces.

Tax collection from this sector – particularly in Punjab and Sindh, the two major producers of farm crops – has always remained negligible, though it has over 21% share in the country’s GDP.

Published in The Express Tribune, May 2^nd, 2014.

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