EDITORIAL: The World Bank has urged the government of Pakistan to merge various federal and provincial revenue agencies into a single General Sales Tax (GST) collection agency.

At present, GST on services is a provincial subject and for the World Bank proposal to be implemented would not only require a constitutional amendment that necessitates a two-third majority in parliament, which may possibly be cobbled together with overt or covert coercion, but which would not only sow dissatisfaction amongst the federating units but is likely to reduce collections as at present the four provincial authorities have succeeded in establishing extremely competent revenue collection organisations focused on raising collections with tax on services emerging as the single largest contributor to provinces’ own collections.

Based on the provinces revenue authorities’ performance it may be more appropriate for provinces to shift land revenue and tax agricultural income under their ambit instead of continuing with the antiquated provincial board of revenue, which should only deal with land records.

Collection of excise duties and motor vehicles tax which at present is collected by another department should also be entrusted to the organisation that is collecting sales tax on services.

The easy way out supported by all previous finance ministers dating back to 2010 when a consensus was reached on the National Finance Commission (NFC) award - extended to this day - has been to lament the award that raised the provincial share in the divisible pool of taxes to 57 percent and a half from 2011-12 onwards and forty-two and a half percent for the federal government.

The remaining amount, it was argued, is not enough to meet the rising mark-up and defence components of the federal budget. While this assessment is accurate, yet three observations are in order: (i) the massive rise in borrowing, mainly domestic last year as the IMF (International Monetary Fund) suspended the loan programme that led to the suspension of pledged assistance by friendly countries as well with the condition that the country must be on a rigidly monitored Fund programme to be eligible for assistance, mark-up costs have been rising astronomically. No administration has been prudent enough to slash its current expenditure, that would require massive sacrifices by the elite in terms of not only on total outlay but also on the source of revenue (at present, the reliance on indirect taxes whose incidence on the poor is greater than on the rich – up to 70 to 80 percent of total collections as 70 percent of all direct taxes are implemented as withholding taxes in the sales tax mode); (ii) while the ongoing wave of terrorism requires that the operational costs are met in the budget yet all other costs need to be trimmed for the next year or two, which would increase our leverage to negotiate with the Fund a more phased approach in implementing harsh conditions; and (iii) the 2010 18th Amendment envisages devolution of 47 subjects to provinces, which has not yet been implemented at a cost of nearly half a trillion to a trillion rupees per annum. It is imperative that subjects like education and health and all others agreed be devolved, which would reduce the pressure on the federal budget.

The Federal Board of Revenue (FBR) has come under considerable criticism in recent years by several finance ministers with one putting the leakage at a whopping 500 billion rupees per annum.

And while the proposals to raise revenue have traditionally been the domain of the FBR even though the decision has to be approved by the cabinet before being placed in parliament yet the fact remains that the proposals veer towards raising existing taxes (for example raising the GST on goods by a percentage point) or towards ease of collection (withholding taxes collection by withholding agents rather than by FBR officials).

Reforms therefore must be focused on formulating a tax structure that is fair, equitable and non-anomalous rather than on expanding the ambit of the Board to include taxes that are within the provincial domain.

At present, the Board has put a gag order on its officials and while prior to the budget this is an appropriate exercise to forestall any one party unfairly benefitting from foreknowledge of a levy or its withdrawal, yet one would hope that this is temporary as reforms in the tax structure must be widely disseminated to get public ownership that is critical to degrading the success of any possible opposition by the relevant pressure group.

More importantly, it is extremely disappointing that the World Bank’s proposals did not take account of our Constitution but also projected a capacity of the FBR that has been in question by nearly every administration that this country has had for decades.

Copyright Business Recorder, 2024


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KU Apr 15, 2024 11:37am
Imagine the power of corrupt when despite repeated accusations of tax-theft of Rs. 500 billion, FBR's complicit role is ignored. No one to stop open-season against the economy of Pakistan and people?
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Yourname Apr 15, 2024 08:54pm
“at present the four provincial authorities have succeeded in establishing extremely competent revenue collection organisations” Really? Unless revenue means bribe culture, the numbers are againstyou
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