PM approves plan to transform FBR

ISLAMABAD: Under much-hyped FBR’s transformation plan, Prime Minister Shehbaz Sharif granted his nod to go after top one per cent wealthy/affluent class of almost 0.6 million, who plunged into under-filing/null filing, and evaded taxes of Rs1.3 trillion on annual basis.

The total tax gap identified by the FBR stands at Rs7.1 trillion on a per annum basis among all taxes.

The FBR has prepared a draft of proposed legislation being implemented through a mini-budget, or ordinance, under which stern punitive actions such as freezing of accounts, banning purchasing immovable property, and vehicles, and investing in stock markets would be taken against potential tax evaders.

The much-trumpeted transformation plan would be implemented in three years, with a total estimated cost of Rs137 billion. This money would be raised with loans from multilateral creditors including extending the Pakistan raises revenues of the World Bank for extending its timeframe beyond June 2025, while a new loan would be secured probably from the Asian Development Bank (ADB). The current budget would also be increased for increased salaries of Super Large Taxpayer Unit (LTUs) in Karachi. On the Customs side, there is an element of smuggling and under-invoicing. The FBR proposed the establishment of state-of-the-art check-posts at 24 bridges on the Indus River equipped with scanners and the latest technology to curb smuggling. The drone cameras will be installed for surveillance. The low-tech check-posts will be established in Balochistan to curb smuggling.

The FBR also proposed that where income was more than Rs10 million, common data sharing mechanism will be developed along with the SBP whereby the cash deposits/withdrawal limit would be restricted to Rs30 million per year where there would be explainable income did not match with the transactions.

Among Income Tax, the top one per cent wealthy who earned on average Rs13.2 million, they only paid Rs499 billion, but under-filing/null filing caused losses of Rs1300 billion. Top earners from 1 to 5 per cent on average earned Rs2.7 million and the FBR estimated they evaded taxes of Rs378 billion. Through under-filing, they showed decreased income and pay less taxes than the actual taxable amount. The FBR also decided to establish Super LTU in Karachi and this model will be replicated into other LTUs in Lahore and Islamabad. In Super model LTUs, the officers will be rewarded with three to six additional salaries on the basis of performance on quarterly basis.

In a detailed presentation by FBR Chairman Rashid Mahmood Langrial, comprising 104-page slides, and given to PM Shehbaz Sharif and key economic minsters, the FBR showed that the tax gap analysis used database of Pakistan Bureau of Statistics (PBS) showing that there was 67 million employed workforce out of total 236 million population. There are 2.7 million non-null filers. Among filers, 30 to 40 per cent are showing their income range of Rs650,000 per annum. This data shows that the majority of filers were supressing their actual income so they fell into category of under-filers.

Secondly, the cash in circulation has been termed the biggest flaw for exploiting real potential of tax compliance in Pakistan as in circulation is highest among all peer countries standing at 25pc whereas it is hovering around 14pc in India and Bangladesh. Out of total tax gap of Rs7.1 billion assessed for tax year FY2024-25, the income tax gap stands at Rs2 trillion, Sales Tax Rs3.4 trillion, Customs Rs0.5 trillion and plus autonomous growth of Rs1.2 trillion. It was conceded that the real tax collection remained stagnant at Rs3.1 trillion from tax base year 2016 to 2024 despite raising tax rates, removing exemptions and abolishing different special tax regimes.

Independent tax experts stated that the ambitious plan to transform the FBR looks impressive on papers, but it is yet to see how the government demonstrates its political will to implement it effectively to broaden narrowed tax base.

Separately, the Board of Investment and Chinese textile firm RUYI Shangdong Friday signed a memorandum of understanding (MoU) under which the latter would establish textile parks of international standards in Pakistan to boost country’s exports to $5 billion and create around 0.5 million jobs.

The document was signed as a nine-member delegation of RUYI group, led by Chairman QiuYafu, called on Prime Minister Shehbaz Sharif here as a significant development regarding Chinese investment in Pakistan following the prime minister’s recent China visit.

According to the MoU, signed at a ceremony witnessed by PM Shehbaz Sharif, the Chinese company would establish textile parks in Sindh and Punjab provinces where around 100 Chinese textile firms would be invited to invest.

The PM lauded the time-tested Pakistan-China friendship and observed that the bilateral economic ties were strengthening with each passing day.

Briefing the prime minister, the company head said that the textile parks aimed at boosting textile exports and making the country a hub of textiles and garments.

To be powered by solar energy, the textile parks would be developed as zero-carbon and automated facility to enhance the exports to $2 billion in its first phase and $5 billion in the second one besides creating from 0.3 million to 0.5 million jobs.

The meeting was told that work on the textile parks to start by this yearend and would take another three years to complete.

The Chinese company would also establish a whole sale commodity centre in Karachi and Lahore. The meeting decided to form working groups in Islamabad and Beijing to further pursue the understanding.

Prime Minister Shehbaz also formed a special committee under Deputy Prime Minister and Foreign Minister Ishaq Dar comprising federal ministers for commerce, investment and privatisation, industries and production, foreign secretary, a representative of Special Investment Facilitation Council and Zafaruddin Mehmood.

The RUYI group chairman told the meeting that they had come to Pakistan, not as an investor but a friend. He also mentioned the Shehbaz Speed referring to the fast-paced execution of development projects during Shehbaz Sharif’s stint as Punjab chief minister and also hoped for same pace in the textile parks project.

Meanwhile, the federal government decided to take further steps for investment and ease of doing business. According to official sources, Prime Minister Shehbaz Sharif formed a four-member cabinet committee on regulatory reforms. Federal Investment Minister Abdul Aalam Khan has been appointed as chairman of the committee. Minister of Commerce Jam Kamal Khan, Minister of Industry and Production Rana Tanveer Hussain, Minister of State for Finance and Revenue Ali Pervez Malik are among members of the committee.

The cabinet committee had been given the task of making recommendations for reforms by Dec 25, 2024. The committee would make recommendations to further improving the business and investment environment in the country. The committee will make policy decisions for fast-track implementation of overall reforms. The committee would review implementation of the Ease of Doing Business Act. It would prepare a preliminary list and identify areas for reforms.