Tax re­forms

The Pak Banker - - FRONT PAGE -

As the govt talks with the IMF con­tinue, one glar­ing hole in the gov­ern­ment's vi­sion for re­forms is on the tax­a­tion and rev­enue side. The pre­vi­ous gov­ern­ments of PPP and PML-N can claim at least some colour of a vi­sion for the ex­pan­sion of the tax base though their vi­sion was crit­i­cised for its flaws or lack of im­ple­men­ta­tion. The PPP tried to ad­vance the idea of value-added tax to pro­mote doc­u­men­ta­tion and bring the re­tail and whole­sale sec­tor of the econ­omy, which ac­counts for al­most 20pc of GDP, into the tax net. That ef­fort failed be­cause the party was un­able to get the votes in par­lia­ment for the so-called RGST (re­formed gen­eral sales tax) bill. The PML-N did not agree to value-added tax, but im­ple­mented the Ac­tive Tax­payer List and in­tro­duced penal­ties for non-fil­ers of re­turns, an ef­fort that can ex­pand in the years to come.

It is not dif­fi­cult to be crit­i­cal of both at­tempts but less easy to sug­gest al­ter­na­tives. Pak­istan's tax-to-GDP ra­tio im­proved in the past decade, stand­ing around 13pc to­day from a low of al­most 8pc a decade ago. But much of the im­prove­ment has come from squeez­ing those al­ready within the net, and the ef­fort to ac­tu­ally broaden the base of tax­a­tion has not met with much suc­cess so far. It is now time for the PTI gov­ern­ment to pick up the ba­ton of tax re­form and con­tinue this jour­ney. Be­fore they can even be­gin, how­ever, they must first ad­vance a vi­sion, some sense of how they in­tend to bring ser­vices into the tax net, and give more airi­ness to rev­enue col­lec­tion. This is crit­i­cal be­cause without a vi­sion to broaden the base of rev­enues, it is more likely they will meet their IMF-man­dated fis­cal deficit ceil­ings by adding to the bur­den of com­pli­ant pay­ers.

At the mo­ment, all we have from the gov­ern­ment is a com­mit­tee formed "to come up with a 'mas­sive and com­pre­hen­sive' re­form pro­gramme", as per an an­nounce­ment made in the mid­dle of Oc­to­ber. The names on the com­mit­tee are tried and tested old hands, so there is lit­tle ex­pec­ta­tion that any­thing mas­sive and com­pre­hen­sive will is­sue forth. Be­sides, com­mit­tees are bet­ter suited to come up with modal­i­ties of im­ple­men­ta­tion when a vi­sion for fu­ture re­form is al­ready present. For the mo­ment, all we have by way of a vi­sion from the PTI is tough talk of strength­en­ing en­force­ment, as well as some fid­dling of re­spon­si­bil­i­ties in the tax bu­reau­cracy. None of this will be enough to broaden the base and pro­mote doc­u­men­ta­tion. The gov­ern­ment needs to take a se­ri­ous view of this crit­i­cal deficit in its re­forms pro­gramme, and use the talks with the IMF as an op­por­tu­nity to ex­pe­di­tiously de­cide on a fu­ture course of ac­tion for tax re­forms.

There is a need to broaden the tax net es­pe­cially on the lux­ury items so that we can curb our ris­ing im­port bills and we should de­vised such a strat­egy that the down­trod­den may again not be af­fected by it as we have seen all tax sys­tem lead to heavy bur­den on the poor masses.

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