AGL 38.18 Decreased By ▼ -0.22 (-0.57%)
AIRLINK 142.98 Increased By ▲ 7.98 (5.91%)
BOP 5.07 Decreased By ▼ -0.02 (-0.39%)
CNERGY 3.77 Decreased By ▼ -0.02 (-0.53%)
DCL 7.56 Decreased By ▼ -0.03 (-0.4%)
DFML 44.48 Increased By ▲ 0.03 (0.07%)
DGKC 76.25 Decreased By ▼ -1.15 (-1.49%)
FCCL 26.95 Increased By ▲ 0.07 (0.26%)
FFBL 52.00 Decreased By ▼ -0.97 (-1.83%)
FFL 8.52 Decreased By ▼ -0.02 (-0.23%)
HUBC 125.51 Increased By ▲ 1.71 (1.38%)
HUMNL 9.99 Increased By ▲ 0.05 (0.5%)
KEL 3.74 Increased By ▲ 0.01 (0.27%)
KOSM 8.15 Increased By ▲ 0.07 (0.87%)
MLCF 34.75 Increased By ▲ 1.05 (3.12%)
NBP 58.71 Increased By ▲ 0.22 (0.38%)
OGDC 154.50 Increased By ▲ 4.55 (3.03%)
PAEL 25.15 Increased By ▲ 0.45 (1.82%)
PIBTL 5.93 Increased By ▲ 0.08 (1.37%)
PPL 118.31 Increased By ▲ 6.66 (5.97%)
PRL 24.38 Increased By ▲ 0.48 (2.01%)
PTC 12.00 Decreased By ▼ -0.10 (-0.83%)
SEARL 56.00 Decreased By ▼ -0.89 (-1.56%)
TELE 7.05 Increased By ▲ 0.05 (0.71%)
TOMCL 34.99 Decreased By ▼ -0.16 (-0.46%)
TPLP 6.98 Decreased By ▼ -0.07 (-0.99%)
TREET 13.98 Decreased By ▼ -0.18 (-1.27%)
TRG 46.10 Decreased By ▼ -0.13 (-0.28%)
UNITY 26.00 Decreased By ▼ -0.08 (-0.31%)
WTL 1.21 No Change ▼ 0.00 (0%)
BR100 8,822 Increased By 86.7 (0.99%)
BR30 26,723 Increased By 466.7 (1.78%)
KSE100 83,532 Increased By 810.2 (0.98%)
KSE30 26,710 Increased By 328 (1.24%)

EDITORIAL: As expected, the FBR (Federal Board of Revenue) is falling short of ambitious revenues targets in an economy experiencing a painful slowdown. Increase in tax rates on the existing base has further dampened the pace of growth in the formal economy.

Reduced imports, coupled with a stable PKR, have resulted in a decline in revenues generated from imports on which the FBR relies for generating more than half of its collection.

And going forward, the falling interest rates would have an adverse impact on tax collection as almost 40 percent of interest income is taxed. A mini-budget appears to be in the offing.

Reportedly, FBR has proposed a one percentage point increase in all Withholding Tax (WHT) rates from 1st October. This step, if implemented, would be totally against the spirit of widening the tax base and the efforts aimed at increasing effective direct taxes.

Another problem from increasing WHT rate is that there would be less taxes at the end of year, as the collection on WHT could surpass the overall tax liability in most cases. That is effectively tantamount to kicking the proverbial can further down the road.

FBR is more concerned about short-term collection to meet monthly (and quarterly) targets to remain current on the IMF’s (International Monetary Fund’s) targets where the programme is yet to be approved by the Board.

The issue is that almost half the sectors in the economy are not taxed. And there is immense resistance from the powerful circles — be they traders or big landlords — to tax the untaxed sectors while collection from the already taxed sectors is reaching its peak.

The higher tax rates and imposition of taxes on traders and retailers have further slowed the economy, as volumes in various industries are showing a decline. The tax rates on milk and other products have increased and there is a visible decline in the formal sector component within these sectors.

Higher tax rates on salaries have lowered the disposable income and consumers have had to reduce their discretionary spend. The whole objective of tax reforms is to improve collection in direct form. And that should be done by gradually tapering off the higher WHT rates. However, FBR, it appears, feels compelled to plan the exact opposite.

The commitment with the IMF is to impose agriculture tax from 1st January 2025. This has its own challenges. There are numerous instances where the transfer of land titles have not been made to the next of kin who tend to avoid to give women in their family their legal rights, and land title remains in the names of dead ancestors.

How will the FBR collect taxes from the dead? In case of retailers, the government is failing to document the economy as it has reportedly conceded to the retailers’ demand that they would not provide information about assets and bank accounts (apart from the one account where refunds, if any, are to be credited).

Textile players say that FBR is deliberately delaying refunds to show better collection numbers in the short term. Exporters are paying 2-2.5 percent tax on revenues where part of it is refundable if the income tax is less than the collection.

But FBR is delaying it, which is increasing the working capital cost of exporters in days of high real positive interest rates. And the other problem is that at the end of the year, there would be higher refund claims with little tax collection in the last month.

And FBR would be short of the targets for the full year. However, short-term issues are in focus at this point due to the fragile political situation and pressure of targets agreed with the IMF.

The bottom line is that the situation is fluid, and FBR should revisit the drawing board and re-strategize the scheme by enhancing the direct form of tax collection. Otherwise, next year will be even worse for the existing base.

Copyright Business Recorder, 2024

Comments

Comments are closed.

Aamir Sep 09, 2024 08:49am
The only solution is to reduce govt and defense expenditures as you cannot further tax a dead economy. The nation has had enough already.
thumb_up Recommended (0)
KU Sep 09, 2024 11:08am
Mentally challenged, if ever its admitted n for a reason. An economic recovery, free from clutches of public sector is probably a last resort, but knowing the powers, it will get worse, then chaotic.
thumb_up Recommended (0)
Nasrullah Khan Sep 09, 2024 04:32pm
Increase tax rate to 50% of income for officials getting more than Rs300, 000 per month and similarly on their pensions. Arrest shopkeepers not paying taxes .....
thumb_up Recommended (0)
Faiz Jalib Sep 10, 2024 08:46pm
Shoddy journalism - A tax revenue spending issue is classified as a tax revenue collection
thumb_up Recommended (0)