Tax promises

Three years ago, the PTI Manifesto 2018, ‘The road to naya Pakistan’, made some two-dozen tax-related promises. The word ‘tax’ appears 43 times and ‘reform’ 46 times. A promise is a “declaration or assurance that one will do something or that a particular thing will happen.” To promise is to “assure someone that one will definitely do something or that something will happen.”

Promise number 1: “We will build a Special Task Force to launch a drive to recover looted national wealth parked in offshore tax havens (page 12).” Fact: More than 50 percent of the PTI’s mandated tenure is over. Can we ask as to how much of the ‘looted wealth parked in offshore tax havens’ has been recovered?

Promise number 2: the “PTI will reform [the] FBR and increase the tax net through a robust tax policy, efficient tax administration structure and effective enforcement mechanism (page 26).” Fact: More than 50 percent of the PTI’s mandated tenure is over. Can we ask if there’s a difference – even a minor one – between the FBR of 2018 and the FBR of 2021?

Promise number 3: “We will increase [the] FBR's autonomy by reducing the influence of the Ministry of Finance (page 26).” Is there any indication that the FBR is now more autonomous than it was in 2018? Any indication that the Ministry of Finance’s influence has gone down?

Promise number 4: “We will champion the shift towards direct taxation as the primary source of tax revenue as opposed to indirect taxes (page 26).” Fact: the FBR’s most recent figures (11MFY2021) show that the proportion of regressive, indirect taxes has actually gone up to 66 percent of the total taxes collected.

Promise number 5: “We will champion sustainable initiatives to reduce taxes on businesses (page 26).” Fact: The corporate tax rate in 2021 stands at 29 percent plus 2 percent worker’s welfare fund plus 5 percent workers’ participation fund for a total of 36 percent. For the record, the average tax rate in Asia is around 20 percent. The ‘branch tax rate’ is 29 percent plus 15 percent withholding tax on remittances of profits to head office. There’s a minimum tax on turnover of 1.5 percent and tax at a rate of 15 percent on dividend income.

Promise number 6: Tax-to-GDP ratio will be increased (page 26). Tax-to-GDP ratio is a “gauge of a nation’s tax revenue relative to the size of the economy.” Fact: Tax-to-GDP ratio has actually come down from 13 percent of GDP in 2018 to 10.9 percent of GDP.

Promise number 7: “We will launch a ten-year incentive plan for rapid growth of the SME sector including tax holiday on new investments (page 30).” Fact: SMEs employ two-third of our non-agricultural labour force and their share in our GDP stands at around 40 percent. More than 50 percent of the PTI’s mandated tenure is over. Are our SMEs better off now than they were three years ago?

To be certain, our private sector is competitive provided their input costs like electricity and gas are kept competitive, provided their tax burden is kept competitive. We need to grow and in order to grow the government needs to increase the proportion of direct taxes, bring down the number of withholding taxes to single-digit, do away with turnover taxes, reduce the rate of corporate tax, bring down GST to single-digit, simplify tax assessment rules and increase SMEs access to financing.

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh