Tax Reforms Commission: Cracks appear before body gets down to real business

Industry opposes forum dominated by chartered accountants.

ISLAMABAD:

Cracks have appeared in the Tax Reforms Commission (TRC) as the president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has refused to accept its composition, arguing that the chartered accountants-dominated forum will further complicate tax matters.

“The composition of TRC is a deviation from the commitment that Finance Minister Ishaq Dar made to the industry,” said Zakaria Usman, President of the FPCCI, which is a representative body of industrialists and traders.

Usman is among 20 members of the TRC that the government constituted last month to reform the country’s ailing tax system. But he skipped the maiden meeting of the commission held on October 18.

“It was my deliberate act not to go to the TRC as I do not accept the body in its present shape,” said a furious Usman.

He claimed that the finance minister had agreed to constitute the commission on his recommendation as the FPCCI president. The FPCCI wanted a single-digit sales tax aimed at improving collections and reducing corruption and that became the reason for setting up the commission.



According to the Federal Board of Revenue’s (FBR) study, he said, against the standard general sales tax rate of 17%, the real effective sales tax rate was only 3.9%. “Where is the remaining 13% going when it is not coming to the national coffers,” he asked.

Usman believed that this was lost in corruption in the FBR, illegal refund claims and tax rebates. There is no point in keeping the GST rate at 17% and the industry has demanded that it should be brought down to 5% and refunds stopped.

Usman is not happy with the government’s decision to appoint a chartered accountant as the TRC chairman. He suggests that a reputed economist from the private sector, preferably an economist of the calibre of former finance minister Dr Hafiz Pasha should be appointed as the commission chief. Masoud Naqvi – a renowned chartered accountant – is heading the TRC.

Usman said the chartered accountants would always give such advice to the policymakers, which was aimed at minting money. He feared that instead of reforming the tax policies, chartered accountants would create further lacunae that could be exploited by tax practitioners once the revised policies were approved by parliament.

He alleged that the government had nominated chartered accountants of its own choice as TRC members. Interestingly, Finance Minister Ishaq Dar is also a chartered accountant.

He questioned the rationale behind constituting a 20-member commission, arguing the number of members should be restricted to six to eight, comprising only industry representatives, FBR officials and noted economists who understand the complex tax policies.

According to experts, the corporate and individual tax system is against the principles of fairness. It lessens the burden on one segment of the society at the expense of another. However, the FPCCI’s reluctance to accept the commission may delay much-needed reforms.

The commission has three months to rewrite the policies, but the division within its ranks may render the body ineffective, according to FBR officials.

In the commission, the government has also given representation to all the main chambers, federations, politicians, chartered accountants and retired bureaucrats.

The chartered accountants too have problems with the industry representatives sitting in the commission.

They argue that the industry players, which are the major beneficiaries of the present tax system, would not allow changes to the tax policies. 

Published in The Express Tribune, October 26^th, 2014.

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