International tax expert Dr Ikramul Haq on Monday conveyed to the Adviser to the Prime Minister on Finance and Revenue, Dr Abdul Hafeez Shaikh, that the tax gap in Pakistan had been estimated at 50 percent, which immediately required removal of enforcement weaknesses, and huge revenue leakages in the taxation system through policy changes in the coming budget 2020-21.
Dr Shaikh chaired a meeting here at the Finance Division through video link with Dr Ikramul Haq to discuss proposals on improving the tax structure of the country with the help of effective data gathering and reconciliation mechanism.
The chairman Federal Board of Revenue (FBR), secretary finance and ex-secretary finance Dr Waqar Masood Khan were also present during the meeting.
Dr Ikramul Haq listed the sectors where there was a huge tax gap due to enforcement weakness of the FBR tax machinery operating in the country.
He exposed the loopholes in the existing taxation system and submitted data with the estimated tax gap of 50 percent.
This means that the FBR is presently capturing only half of this revenue potential, i.e. the gap between actual and potential receipts is 50 percent.
He informed budget makers that the biggest challenge on tax mobilisation front faced by the FBR is bridging this tax gap through automation and introduction of tax intelligence system and levying taxes on the rich, rather than enhancing the rates of the existing ones, especially the indirect taxes-already made us uncompetitive in the world. Dr Ikramul Haq suggested certain policy changes in the taxation system and changes in methodology for collection of taxes from various sectors.
For instance, if presumptive tax is imposed on turnover/receipts, the collection will be around Rs800 billion from all businesses and profession other than companies and employees that will keep on paying taxes under the existing tax rates and system.
The adviser appreciated the work done by Dr Ikramul Haq for gathering data across the country from selected markets and from different chambers of commerce and Industry.
Dr Ikram shared with the adviser the important inferences from data gathering exercise and suggested certain techniques for data reconciliation that could improve tax collection in a more effective manner.
The adviser said that the basic purpose of this exercise is to consult experts to seek suggestions and insights, so that the fundamental problems of the tax collection system in the country could be effectively addressed.
He said that as we are preparing the next budget, we should be more vigilant, practical and analyze the opportunities and challenges offered by the current environment.
The government is ready to listen to all the stakeholders to prepare a budget, which is according to the need of the prevailing economic circumstances and innovative in providing solutions to the structural problems of the economy.
He asked the expert to firm up his proposals in concise and doable manner and share the draft as early as possible with the ministry, so that these proposals could be well incorporated in the upcoming budget.
He also directed the FBR to collect data through multiple sources that may be best used for effective budget making exercise.
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