‘FBR must align with real stakeholders to widen tax base’

KARACHI: The government needs to take real stakeholders on board to broaden tax base and improve tax-to-GDP ratio, as number of returns filed has declined over 23 percent to 1.31 million till the first week of December 2020, compared to 1.69 million in last tax year, a business leader said on Saturday.

“The FBR has failed to obtain return of income from NTN holders and increase number of active taxpayers in the last decade, indicating bad governance and weak management of tax department,” said Anjum Nisar, president Federation of Pakistan Chambers of Commerce & Industry (FPCCI) in a statement.

According to data, the FBR has received about 23 percent less income tax returns for the tax year 2020 while the tax received with returns stand at Rs6.5 billion during the period against Rs12.8 billion in the same period last year, reflecting a fall of 49 percent.

“There is an urgent need of reforming and simplifying the taxation system with the consultation of real stakeholders, besides addressing the issue of double taxation through integration of provincial and federal government laws and harmonisation of FBR and Punjab Revenue Authority (PRA).”

Nisar suggested that taxes should be charged one time by any provincial or federal government, as provinces levied same kind of tax, which the federation had already imposed, escalating the cost of production and discouraging the registered manufacturers.

He called for harmonisation of sales tax and income tax laws, removal of conflicting provisions, reduction of tax rates, and expanding tax base through automation and by bringing all exempted sectors into the tax net.

The FPCCI chief said high utility tariffs and regulatory duties on raw material were also discouraging factors for exports, adding that coordination between the government and the private sector was vital for economic growth, for which the authorities needed to develop pro- business policies.

He suggested the government to enforce strict measures to stop illegal trade, as the smuggling was not only causing massive shortfall in revenue collection but also discouraging the legal businesses and documented economy.

“Majority of the people don’t want to get them registered and preferred purchasing of smuggled goods mainly due to high duties on legal import,” Nisar said.

“Only direct taxes can improve tax collection, as the existing tax system is heavily skewed toward indirect taxation, while sustainable solution to Pakistan’s problems lies in the structural reforms, as we can see very large inefficiencies in tax collection, which needs to be removed.”

So, the tax compliance must be improved and tax base should be broadened, which could not be achieved with a single policy change, but by a systemic approach, he added.

He urged the authorities to introduce new tax incentives and extend the period of existing ones.

“We have asked the FBR to reduce the tax rates to help increase competitive edge of indigenous products in both local and global markets, as high tax rates provide incentives for tax evasion and corruption and results in high cost of doing business.”

Nisar said the tax agency should conduct a study to find out what went wrong that even after penalising the non-filers, they were happy to pay more by way of advance tax instead of filing returns.

He recommended that the current sales tax regime of VAT mode should be reviewed and in case enforcement was not possible it should be overhauled, to eliminate corruption and the negative financial impact on businesses due to delay in refunds and provide level-playing field to the organized sector.

“Heavy reliance on withholding taxes is affecting the enforcement capabilities of the FBR administration, since majority of tax collections is through the withholding tax regimes and not through enforcement measures,” the FPCCI president said.