Tax re­form

The Pak Banker - - FRONT PAGE -

Many times in the past ef­forts have been made to in­crease rev­enue col­lec­tions un­der the ex­ist­ing tax laws as well as broaden the tax net but to no avail.The main is­sue is in­com­pe­tence and cor­rup­tion on the part of the tax­a­tion ma­chin­ery.For in­stance, un­der the In­come Tax Or­di­nance, all those who own ur­ban land or a flat above a cer­tain cov­ered area, as well as sev­eral pro­fes­sional groups, in­clud­ing mem­bers of cham­bers of com­merce and in­dus­try, en­gi­neer­ing coun­cil and med­i­cal as­so­ci­a­tions, etc., are re­quired to file in­come tax re­turns an­nu­ally even if all their in­come is ex­empt from im­po­si­tion of in­come tax. This in­cludes even those whose in­come is sourced to agri­cul­tural in­come (which re­mains out­side the am­bit of the FBR ac­cord­ing to the con­sti­tu­tion). But very few peo­ple file their an­nual tax re­turns.

Un­der the law, the FBR has to as­sess whether the en­tire in­come of the filer is from a source that is not sub­ject to tax or whether part of it is tax­able. But, ac­cord­ing to a re­port, the Fed­eral Board of Rev­enue has been de­lay­ing on the lat­est re­form mea­sures which were orig­i­nally de­signed to block all loop­holes in the tax ad­min­is­tra­tion sys­tem leading to rev­enue losses. The re­form mea­sures were evolved as part of the Tax Re­forms Com­mis­sion's rec­om­men­da­tions and were tasked to the Tax Im­ple­men­ta­tion Re­form Com­mit­tee. This com­mit­tee which has a rep­re­sen­ta­tion from the pri­vate sec­tor was not taken se­ri­ously by the tax au­thor­ity's top man­age­ment. Sev­eral meet­ings were held on all cru­cial re­form mea­sures but they still await ap­proval for im­ple­men­ta­tion de­spite the lapse of sev­eral months.

One of the re­form mea­sures re­lates to the in­tro­duc­tion of foren­sic au­dit for ma­jor com­pa­nies, es­pe­cially the tele­com sec­tor. The se­cond big re­form pro­posal was the in­tro­duc­tion of elec­tronic mon­i­tor­ing of to­bacco prod­ucts. Orig­i­nally, it was agreed to in­tro­duce a track and trace sys­tem for the to­bacco in­dus­try from the start of the cur­rent fis­cal year.The com­mit­tee also fi­nalised the sys­tem for cur­tail­ing tax eva­sion in the to­bacco in­dus­try but some FBR of­fi­cials are said to be block­ing the pro­posal. It is es­ti­mated that more than Rs30 bil­lion per an­num rev­enue is lost due to tax eva­sion in the to­bacco in­dus­try. It was also agreed to es­tab­lish data con­nec­tiv­ity with other de­part­ments for bring­ing more peo­ple un­der the tax net, but progress on this ac­coun­tis very slow.

Ac­cord­ing to a re­port, the State Bank of Pak­istan is will­ing to pro­vide data on with­hold­ing taxes to the FBR. How­ever, the re­sponse from the FBR is neg­a­tive. The with­hold­ing agents with­hold taxes but do not sub­mit the same into the gov­ern­ment ex­che­quer. An­other pro­posal was re­gard­ing the of­fer from Pak­istan Bank­ing As­so­ci­a­tion on data shar­ing with the tax depart­ment. An­other rec­om­men­da­tion was the regis­tra­tion of Rs25,000 and Rs40,000 bonds to check whiten­ing of black money through these bonds. But the gov­ern­ment has not yet moved to im­ple­ment this re­form mea­sure. The FBR high ups are also op­pos­ing the in­tro­duc­tion of sin­gle page in­come tax re­turn form. The cur­rent FBR team is only in­ter­ested in tem­po­rary mea­sures to raise money for achiev­ing rev­enue tar­get.

There are sev­eral ways to broaden the tax base. Agri­cul­ture is a ma­jor win­dow. An­other im­por­tant source is the in­come of pro­fes­sion­als like doc­tors, ac­coun­tants and lawyers. Re­search stud­ies have also shown that our col­lec­tions from the stock mar­ket are very low - around 5 to 6 bil­lion ru­pees per an­num. Other coun­tries like In­dia gen­er­ate more than 100 bil­lion ru­pees from their stock mar­kets. The over­rid­ing need is to re­form the tax struc­ture and im­prove the tax ad­min­is­tra­tion to boost rev­enue in the long run.

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