EDITORIAL: It’s unfortunate that Pakistan Business Council’s (PBC’s) recommendations about generating fairer and higher taxes will not be entertained till a new government is elected and has then had time to settle down. Just before caretaker finance minister Dr Shamshad Akhtar is to bow out, PBC, while openly welcoming the government’s plans to split FBR into two entities, also raised concerns about keeping the formulation of tax policy in the ministry of finance.
Its observation is not without merit that withdrawing FBR’s policy role but maintaining it within the ministry of finance simply means that “deficit financing measures will continue to influence policies”.
Therefore, despite the reforms – welcome as they are – short-term and revenue seeking measures are likely to dominate tax policy, which means the ministry’s habit of chasing revenue targets will most likely pile further pressure on existing taxpayers rather than expand the net. It, therefore, suggested that “the policy role be under the ambit of the ministry of planning to align fiscal policy with long-term industrial and trade policies within the framework of five-year plans”.
Such an arrangement would make a lot of sense, which is why its variants are employed in most leading economies of the world. In principle also, policies should drive growth of businesses, routing higher taxes to the exchequer and thus “wealth creation, capital formation and accumulation, consolidation through creation of groups, investment, employment, exports, import substitution, and building resilience to climate change should be drivers of tax policies and goals of the policy board”.
PBC also noted with concern that the policy board will not have taxpayers’ representation. This is a fundamental oversight since taxpayers, especially businesses, are also the most important stakeholders along with the state. And now, that the long-overdue requirement of FBR reforms is being given the final touches, it is crucial not to jump into the exercise with only half the homework done.
Therefore, when the new government is formed it must also give serious attention to the 25 measures proposed by the country’s leading business advocacy forum, which has long called for separation of fiscal policy from tax administration.
It has once again urged the government to “ensure long-term predictability” so policy changes do not affect investments based on previous policies. It has also asked for revenues from new taxpayers to form the primary collection target, since there is no better way to ensure broadening of the tax net.
And, perhaps most importantly, it has also recommended that the burden of disproportionate taxes be removed from a few taxpayers; “in particular, withdraw the super tax, which was billed as a one-time tax when imposed”.
And, while authorities are at it, they must also make taxes and tax processes simpler and more transparent, which will not only encourage more people to pay taxes but also help cut down on harassment that is typical of the FBR. Lastly, PBC also called for taxing profit, not turnover, and ensuring that the formal sector enjoys favourable taxation than the informal sector.
PBC has made some fair points, and the government would do well to consider them before going full steam ahead with the proposed reforms.
Copyright Business Recorder, 2024