New tax laws won’t affect 95% households: FBR

ISLAMABAD: The Senate Standing Committee on Finance was Tuesday informed that the recent changes in the tax laws would not affect 95 percent households but the potential tax-dodgers, and the government will fetch additional Rs5 trillion within five years.

The committee kick-started deliberations on Tax Laws Amendment Bill 2024 in the absence of the ruling party senators. However, Minister for Finance Mohammad Aurangzeb and Minister of State for Finance Ali Pervez Malik participated in the meeting.

Senator Saleem Mandviwalla chaired the committee meeting at the Parliament House.

Senator Mohsin Aziz and Shibli Faraz from the PTI participated.

The chairman postponed the meeting till the next session of the panel.

Briefing the committee, FBR Chairman Rashid Mahmood Langrial said the Tax Policy Unit will continue data analysis to review the impact of tax rates under the broader economic picture of the country.

“We are not here to raise taxes or impose new taxes, but to resolve the issue where we were forced to increase the tax rates. The bill would resolve the issue of non-filing or under-filing of returns,” Langrial said.

He clarified that 95 percent of the households would be not affected by the Tax Laws (Amendment) Bill, 2024.

The finance minister was confident that the bill would play an important role in taking the tax-to-GDP ratio from the existing 10.3 percent to 13 percent in the next five years. The tax-to GDP ratio of our neighboring country stands at 18 percent.

There is a tax gap of approximately Rs5 trillion. The sales tax gap was Rs3 trillion during 2023-24 whereas the income tax gap stood at Rs2 trillion during the period, Langrial told the committee.

He said out of 62,000 registered entities, only 42,000 were actively paying sales tax. Any failure to pay sales tax is more unethical compared to the income tax-evasion. The proposed amendments seek to improve the sales tax collection mechanisms, he added.

Senator Syed Shibli Faraz also inquired about the potential impact of amendments on broadening the tax base.

Responding, the FBR chairman predicted that the tax-to-GDP ratio could rise to approximately 13% over the next four to five years, driven by increased revenues from sales tax, income tax, and customs duties.

Finance Minister Mohammad Aurangzeb said credibility and trust gap existed which needed to be overcome.

Under the FBR’s transformation plan, he said top priority was given to restoring confidence and trust in the tax authority. He said the element of corruption and harassment would abolish, tax base would broaden and revenue leakage as well as under-filing would curtail.

“My sympathy is with the salaried class, as I am paying high tax like super tax/CVT on the salaried income,” Aurangzeb said.

Rightsizing of all the ministries is also underway, he said.

The finance minister said the government had interacted with associations, including retailers and wholesalers, and it was very clear that everyone had to contribute to the economy.

“If we fail to collect taxes from the non-compliant sector, then what we will do in next budget? Will we again increase taxes on the already overburdened taxpayers like the manufacturing sector and salaried class?” he asked.

Syed Shibli Faraz asked whether the bill should be classified as a money bill or an ordinary bill.

Secretary Law and Justice Raja Naeem Akbar clarified that the bill should be treated as a money bill, citing Article 73(2) and Article 75 of the Constitution of Pakistan as the legal basis.

Senator Syed Shibli Faraz emphasized the urgent need to restore public confidence in the tax authorities, asserting that no substantial progress could be made without winning the public trust.

In response, the minister for finance outlined the government’s commitment to rebuilding this trust through the introduction of “People Process Technology” initiative.

He reiterated the government’s empathy towards the salaried class and stressed that efforts were underway to create a fair balance between different socioeconomic classes.