EDITORIAL: According to a Business Recorder exclusive, the Federal Board of Revenue (FBR) is in the process of identifying and withdrawing 150 billion rupees worth of exemptions to the corporate sector from the Income Tax Ordinance 2001. Two extremely disturbing elements need highlighting. Firstly, an ordinance by giving the executive the power to legislate instead of parliament is an autocratic mechanism that needs to be revisited within a democratic setup. Pakistan Institute of Legislative Development And Transparency’s (Pildat’s) research indicates that since August 1973 Pakistan has promulgated 1774 ordinances compared to India’s 533 and that military governments promulgated 680 ordinances, elected governments 954 and caretakers 140. The Khan administration has issued 18 ordinances per year – the lowest number when compared to other elected governments’, however, even one ordinance is one too many with few if any promulgated ordinance meeting the Article 89 constitutional provision of circumstances existing which render it necessary to take immediate action. The 2010 18th Constitutional Amendment clause barred the promulgation of an ordinance more than twice whereas previously the practice was to re-promulgate the ordinance multiple times to trounce the 120 day life limit of an ordinance.
And secondly, the basic source of concern for multilateral and bilateral donors, including the International Monetary Fund (IMF), with respect to Pakistan’s sustained fiscal stress is the inequitable, unfair and anomalous tax structure that includes tax exemptions extended to the rich and politically influential productive sectors of the economy. Multilateral programme after programme, including the on-going twenty-third IMF’s 6 billion dollar Extended Fund Facility programme, stipulate the withdrawal of all tax exemptions; however, administration after administration has resisted or re-instituted these exemptions as soon as the programme was over on the plea that it is necessary to support the nascent industrial sectors to generate future taxes and exports. No study has ever been undertaken to determine whether these exemptions have actually paid dividends or whether they have simply kept the recipients hostage to government largess to compete in the market.
To finally consider withdrawal of these exemptions in the income tax ordinance after nineteen years may indicate that better sense has at last prevailed though independent economists maintain that this may be sourced to the ongoing negotiations with the IMF on the second mandatory review and not to any conclusive analysis of the cost of the exemptions to the economy. Whatever the reason one must appreciate this exercise and hope that the staff of FBR would henceforth engage in out of the box thinking to raise revenue instead of: (i) massively relying on sales tax as a source of revenue, a regressive tax whose incidence is greater on the poor than on the rich; (ii) raising reliance on withholding taxes collected by withholding agents and not FBR staff to generate almost 75 percent of direct tax collections though these collections are in the sales tax mode and therefore should not be credited to direct taxes; and (iii) heavy reliance on taxing fuels to generate revenue which in turn raises input costs and thereby may provide some justification for the industrial sector to claim exemptions, other than the high cost of inputs.
The FBR blames the executive for the existing tax structure by arguing that the Board can only recommend and it is the cabinet that decides to take those recommendations to parliament or not. However, Business Recorder has consistently argued that year after year the FBR remains focused on generating revenue from existing tax sources to meet its budgeted targets, which needless to add are unrealistic (particularly during the last two years), and has not been in the forefront of changing the flawed tax structure in spite of numerous multilateral loans to improve its governance (which were largely declared unsuccessful) or incorporate the recommendations painfully compiled by the national taxation reform commission.
Copyright Business Recorder, 2020
Comments
Comments are closed for this article.