EAC proffers suggestions to broaden tax base

The Economic Advisory Council (EAC) on Friday agreed that rates of taxes such as corporate tax, general sales tax (GST) and income tax could be gradually reduced if the number of taxpayers increased considerably following the documentation of economy. Sources told Business Recorder that all the members of the EAC were unanimous on the need of broadening the tax base and documentation of the economy as well as bringing elite groups of society into the tax net.
The EAC discussed and considered various options to broaden the tax base by allowing Federal Board of Revenue (FBR) access to bank accounts, monitoring of withholding agents and an effective audit to expand tax net by using a third party information. It was highlighted that if the government did not intend to take new taxation measures and increase tax rates in the budget (2012-13), the broadening of the tax base was the only option to mobilise resources to tackle budget deficit.
However, sources said the government may take some enforcement-related measures to expand the tax base. Particularly, the government intends to limit the scope of the Presumptive Tax Regime (PTR) and rationalise withholding tax regime. It was told that the FBR would be able to generate an amount of Rs 50 billion through administrative and enforcement measures in the remaining period of the current fiscal. The Board has collected Rs 41 billion from enforcement measures during the current fiscal so far.
Another important proposal underscored the need for government to consider issuance of business licenses for documentation of the newly-registered persons. At present, there is no compulsion for a new businessman to obtain such kind of business licenses for documentation purposes. Besides computerised national identity card numbers (CNICs), the condition of obtaining business licenses should be considered for maintaining basic record and particulars of a unit.
Meanwhile, a statement issued after the meeting stated that Economic Advisory Council presided over by Minister for Finance Dr Abdul Hafeez Shaikh reviewed the overall economic situation with suggestions for upcoming budget of 2012-13. The meeting started with brief presentations by each member of the economic team.
The Chairman FBR informed the council through a detailed presentation about the overall performance of his organisation this year. He spoke about the ways and means to achieve the targeted tax collection. He also highlighted the measures taken by the FBR to expand the revenue collection. The second presentation was made by Secretary Finance about the performance of his ministry.
He gave a critical overview of all macroeconomic indicators. He said that Real GDP in FY2011 was 2.4 %; target of FY2012 was 4.3% while projected GDP of 2012 was 3.6%. Inflation (CPI) stood at 13.9% during FY2011. The Target of FY2012 is 12.0 % and projected inflation in 2012 is 12.9%. The fiscal deficit stood at 6.6% in FY 2011; target of FY2012 was 4.0% and projected fiscal deficit was 4.7%.
He informed the council that losses to economy caused by recent floods were partially mitigated by good performance of agriculture sector in Punjab. He also talked about the expected measures which would help reduce deficit. Some measures were austerity measures in expenditure, Auction for 3G license, tariff and fuel adjustments and recovery from Coalition Support Fund.
The Secretary, Planning and Development Division briefed the council on the overview of Public Sector Development Plans (PSDP 2011-12). He presented an outline of 20 mega projects under the PSDP. He said that foreign aid to PSDP had been increased to a significant level, which was reducing the overall burden on the country's existing financial resources. He discussed in detail the hurdles such as political and bureaucratic pressure, poor project appraisal, over run cost of projects faced by Planning Commission.
Governor State Bank of Pakistan endorsed the facts presented by other members of finance team. While talking about monetary policy, he said that country's banking sector seemed resilient despite the European financial crisis. He also said that some other foreign banks were in pipeline to operate and invest in Pakistan.
The members of the Economic Advisory Council, who included, Shamashad Akthar, Ayesha, Nasim Baig, Hussain Ali Chandio, Shoaib Sultan, Ali Habib and Bashir, offered comments and multidimensional suggestions in relation to various aspects of national economy. A detailed discussion was made by different members on specific matters regarding a decrease in local investments, issues of large scale manufacturing sector and auto mobile industry, utilisation of social safety nets, problems of agriculture sector in the context of exports and fertilisers. Suggestions on tax related matters and balance of payments were also proffered by various members.
Finance Minister informed the council about the perceptions and realities regarding economic performance of the government. He said that media was unjustly creating a negative perception among the masses on the present government's economic performance. He assured the council that his economic team was doing his best without any discrimination. Country's all Annual Development Plans and tax-related measures were fair and free from any undue political influence, added by Finance Minister.
While concluding the meeting, Finance minister constituted small groups which would give suggestion in specific areas for the upcoming budget at the next meeting. One group headed by Nasim Baig will look into the matters of balance of payment. The second group will provide some concrete suggestions on different concerns raised in manufacturing and industrial sector.
The third group will look into the matters of capital market. The fourth group will cover provincial financing and co-ordination while fifth group will work on social safety nets. All groups will give suggestions in the next meeting to be held by April 7, 2012. It was also decided that the council would meet frequently.