ISLAMABAD: Former chairman Federal Board of Revenue (FBR) Shabbar Zaidi categorically said that the government has to forcefully establish the writ of the state by documenting traders, retailers, wholesalers and dealers, which would result in a clash between Pakistan’s political system and tax system in coming years.
Speaking as a guest in “Paisa Bolta Hai” of Aaj News with Anjum Ibrahim on Sunday, Shabbar Zaidi stated: “I am seeing a clash between Pakistan’s political system and tax system in the coming days. Now the time has come to enforce the writ of the tax in the country, but the political forces would not allow establishing this writ of the state. I was also the victim of such political forces. In the coming years of 2023, 2024, 2025, there would be a clash, but days of non-taxpayers like traders’ are now over to enjoy such luxuries of tax immunities and concessions.
On the other hand, the political system, which is standing on the support of the trader community, would never allow establishing this writ of the tax, resulting in a clash like situation in the country, he added.
The present ad-hoc arrangement of tax collection with the retailers/ dealers/ wholesalers would not work in future, he said.
Former chairman FBR said that the vote bank of the current PML-N government is the trader community. The policy promoted by the PML-N government for collection of taxes cannot move ahead with the country’s future taxation system. The PML-N government is traditionally used to give benefits to the un-documented sector of the trader community. They destroy industry whenever they come into power.
He said that the tax policy of the PML-N government will squeeze the existing documented sectors and continue to give benefits to the traders and retailers, nut it cannot work any more. The days are gone when such a policy can continue.
Shabbar Zaidi said that the budget presented by the PML-N government for 2022-23 has destroyed the organized sector. The policy to collect more and more tax from only compliant and high tax paying sectors/ companies will destroy the documented sectors. It is not possible to only document manufacturers within the entire supply chain excluding retailers.
He added that the government’s decision to collect taxes from traders through their monthly electricity bills was also a flawed policy. Even this system of taxation of traders through power bills was rejected by their vote bank of traders.
However, strongly defending the PML-N government, former Special Assistant to Prime Minister on Revenue Haroon Akhtar stated that the PML-N government knows very well how to do tax collection and they have proved it in the past. It is the same government which raised the Tax-to-GDP ratio to 11.4 percent in 2016-17 and 11.1 percent during their last tenure. This government is also an expert in handling the trader community and had imposed 0.4 percent withholding tax on non-filers covering mostly traders and collected over Rs 20-22 billion from non-filers. The PML-N government introduced the policy of imposing tax on the basis of turnover through a lucrative scheme of lower tax rate, he said.
Haroon Akhtar further stated that the new government had come into power only two months before the federal budget (2022-23). They have presented a budget on a fast-track basis in a two months short period.
He agreed that some budgetary measures that were not given due thought process were later withdrawn. The government has taken step one to get back to the IMF program. Once stage one is complete, we will see the next step to assess the capability of the current economic team to handle the existing situation, he said.
Haroon Akhtar further stated that Pakistan has immense potential of tax collection but due to political compulsions we are now standing at this stage of documentation.
Former Special Assistant to the Prime Minister raised the question why any government is reluctant to tax the agriculture sector having a major contribution to the GDP. The manufacturing sector has been over burdened with taxes.
Responding to a question, Haroon Akhtar endorsed that it is a big question that when all the budgetary measures were agreed with the IMF before the budget (2022-23), then why all taxation was not done at that time and later taxes were revised through the Ordinance.
However, renowned tax lawyer, Waheed Shahzad, Butt stated that the cost of litigation has increased due to some measures taken in the last budget. The government was forced to withdraw measures like collection of taxes from small retailers through the electricity bills. The independent political will is needed to document sectors paying low taxes. At one time, the government had barred non-filers from purchasing properties and vehicles. Later, the policy was reversed due to pressure.
Butt suggested that the concept of non-filers should be eliminated. The FBR itself is promoting un-documentation by allowing non-filers to conduct financial transactions on payment of higher withholding tax rates.
To a question, Shabbar Zaidi stated that the budget presented by the PML-N government for 2022-23 only focused on additional taxes from the sectors/ people who are already heavily taxed. The taxation of deemed income of immovable properties has been challenged in the courts because immovable properties have been taxed in a wrong way. The government should have imposed “Wealth Tax” instead of giving it other names of deemed rental income, etc.
Shabbar Zaidi stated that he cannot see any right direction or policy of taxation of the PML-N government in the country. The revenue increase is a result of rupee-dollar parity, inflation and heavy taxation on imports, but no structural changes in the tax system.
He stated that the average tax rate of the banking sector has gone over 60 percent. A company whose year ended in December and distributed the dividend is now forced to pay 10 percent Super Tax which is illogical.
Shabbar Zaidi said: “I consider three things as a ‘curse’ in the taxation system. Firstly, withholding tax on cash transactions, secondly, the difference between taxation rates for non-filers and filers. In this case, we say that the non-filer is a criminal but we will not treat him like a criminal. Thirdly, the turnover tax is also not a good tax, but FBR generates revenue from the said three taxes.”
Copyright Business Recorder, 2022