Collection target may even touch Rs 1900 billion mark: RAC discusses taxation measures

The federal government is likely to fix the revenue collection target of the Federal Board Revenue (FBR), for fiscal year 2011-12, in the range of Rs 1875 billion to Rs 1900 billion. Sources told Business Recorder here on Saturday that the issue of taxation measures and revenue projection was discussed threadbare during the meeting of the Revenue Advisory Council (RAC), headed by Dr Hafiz Pasha here at the of the Federal Board of Revenue (FBR) House.
The current pace of revenue collection and updated position of the collection was also discussed during the meeting. Beside other tax experts and economists, the meeting was also attended by three leading chartered accountants including Abdullah Yusuf, Shabber Zaidi and newly inducted RAC member Ashfaq Tola, a recognised expert on the RGST. The FBR team of tax managers was also present in the meeting.
According to sources, the tax managers estimated that the revenue collection target for 2011-12 could be between Rs 1875 billion and Rs 1900 billion, depending on the performance of tax machinery in the remaining period of current fiscal year. However, the RAC observed that Rs 1850 billion would be a realistic revenue collection figure for 2011-12. It would be a target which seems achievable for next fiscal year 2011-12. However, any move of the government to set Rs 1952 billion as revenue collection target would be over-ambitious which could not be achieved keeping in view the current pace of revenue collection in 2010-11.
The tax projections for the next fiscal year would depend on the performance of the tax machinery during April-June 2010-11. Taking into account economic factors and current position of revenue collection, the estimated projection of Rs 1850 billion seems to be a very realistic figure for next fiscal year.
The RAC was further informed that the revenue collection has reached Rs 117 billion during April 2011 against the target of Rs 151.2 billion, reflecting a shortfall of Rs 34.2 billion. The FBR has to collect around Rs 34.2 billion in the next few days to meet the monthly target of Rs 151.2 billion, which seems to be an uphill task for the tax machinery.
Sources said that the FBR Chairman Salman Siddiqui informed the committee that measures are needed to improve the overall situation of the economy. Apart from taxation measures, the government has to look at the overall picture of the economy. The Revenue Advisory Council (RAC) opposed new taxation measures or increased tax rates, and proposed effective enforcement and administrative measures for increasing revenue collection. Under the current economic circumstances, it would not be appropriate to impose new taxes, or increase in the incidence of tax rates. There is a further need to reduce the tax gaps for increasing revenue collection in next fiscal year, it said.
On the issue of the reformed general sales tax (RGST), the RAC is looking at various options and they would consider all options including RGST, in the next meeting. The tax managers presented different tax proposals, including increase in the corporate rate of banking sector, insurance sector and cash withdrawal from banks and increase in the tax rate for salaried individuals. However, the RAC opposed certain new taxation measures with the suggestions to improve the administrative and enforcement measures for increasing the revenue collection. Some members of the RAC strongly opposed any imposition of new taxes, or increase in the tax rates, but they wanted to improve the existing enforcement and compliance mechanism of the FBR.
The RAC also thoroughly reviewed the report of the subcommittee headed by Federal Board of Revenue Member Inland Revenue Khawar Khurshid Butt on the minimum alternative tax on high net worth individuals. The subcommittee comprises Arshad Zuberi from Business Recorder, Shabbar Zaidi, Shahid Hussain private sector expert, FBR Member Legal Muhammad Aqil Usman, Director General Broadening of Tax Base Shahid Hussain Asad and Aftab Ahmed, Chief of Income Tax Policy.
According to sources, the concept of minimum alternative tax would encourage documentation and return filing by asset holders and it would also be instrumental in checking the on-going evasion of taxes. However, final decision on the minimum alternative tax on high net worth individuals has yet to be taken by the policy makers.
As per proposal, new tax will be a direct tax on individuals that shall include assets in the name of dependents. The assets and income of spouses shall be clubbed and in case of Association of Persons (AOPs), the share of that individual shall be taxed. However, dual taxation in any manner will be avoided and a minimum tax based on assets created out of exempt, undisclosed or untaxed income on which no income tax has been paid will be subjected to this adjustable levy. The subcommittee has proposed a threshold of Rs 25 million at the valuation date, excluding self-occupied house. The rate of tax proposed is 1.25 percent of the value of assets.