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Jun 06, 2020 PRINT EDITION

PTI government's tax vision

Dr Abdul Hafeez Shaikh, advisor to prime minister on finance and revenue affairs, reportedly reminded the Federal Board of Revenue (FBR) officials that their tax proposals for next year's finance bill 'do not represent the vision of the government and nee

May 23, 2020

Dr Abdul Hafeez Shaikh, advisor to prime minister on finance and revenue affairs, reportedly reminded the Federal Board of Revenue (FBR) officials that their tax proposals for next year's finance bill 'do not represent the vision of the government and need to be simplified' since the government is due to announce the next federal budget in the first week of June; just a little over a fortnight from now. Still his words, even if FBR representatives found them a little stern, would have been welcomed by the ordinary Pakistanis who should be forgiven for believing that taxation measures were effectively IMF domain with the finance ministry reduced to simply relaying and justifying whatever was decided. The ministry is clearly trying to portray the government as favouring, and indeed pushing, measures that ensure ease of doing business and reduce compliance costs, especially as the economy struggles to cope with the slowdown caused by the coronavirus. Surely the government, which sees the latest numbers before anybody else, also understands best just how fragile the present economic environment is. And any undue pressure on businesses at this point, especially in the form of excessive taxation and nonsensical bureaucratic red tape, will deliver a quick kiss of death to any plans of reviving output and employment.
That is why Dr Shaikh's heart is definitely in the right place. The tax regime indeed needs to be simplified and there is really no justification for "...keeping so many taxes in the list which actually yield very little or nothing and yet add a lot of hassle to the taxpayer," especially when we can have "four or five (taxes) with high yield and get rid of the others." That would no doubt, as Dr Shaikh himself put it, "make the budget a simple document rather than a horrible story." But perhaps the finance bill would already have made for pleasant reading for taxpayers had the Bureau received such bold advice earlier; maybe when the finance ministry and FBR were tasked with increasing tax revenue and spent much of the year imposing the kind of taxes that now seem unduly burdensome. Granted, there was no way of foreseeing or preparing for the kind of battering that the pandemic and the lockdown are delivering to economies all across the world. And now that the onset of a global recession has been well and truly established, countries like Pakistan will have a harder time than most navigating the next fiscal year or two because their economies do not have much spare capacity to speak of. How they fare will depend largely on how much rope lenders are willing to give them; hence the necessity of keeping domestic policies business-friendly.
Yet even if they went from the meeting with the advisor to PM on finance and revenue affairs right back to the drawing board, do FBR and the finance ministry still have time to prepare, as Dr Shaikh demanded, 'tables of taxes at different levels according to their size, impact and collection, compliance costs and sensitivity analysis, supported by their sector studies to reach informed decisions...' and all that in time to get it studied, debated, checked and approved for the next budget? Revenue officials must also have wondered what to do when they were snubbed for recommending increase in some taxes, in view of the downturn of course, and then also informed that their target for next year was going to be Rs5.1 trillion, about 30 percent in excess of the recently revised estimate of about Rs3.9 trillion for FY20.
No doubt the finance ministry has had its hands full this past quarter as it aided the government in preparing relief packages in light of the lockdown - and done a very good job of it - but it seems that the kind of attention that the FBR needed to keep up with changing times took its sweet time coming. Now, despite the need to facilitate businesses there is also the rather urgent need to increase receipts given that export earnings and remittances are declining sharply and Moody's Investor Service has just put us on watch for possible downgrade because weak revenue collection, among other things, threatens to push us towards default on debt repayments to private sector creditors. Now the government will have to walk a tightrope to balance the interests of taxpayers and businesses while also raising enough revenue to keep from defaulting, that too in the middle of the recession caused by the coronavirus. But its thinking is now correct, at least, and hopefully it will move the tax collection machinery in the right direction.

Copyright Business Recorder, 2020