May 16 - 22, 20

Devising business-friendly fiscal policies must be the prime objectives of the government in the budget 2011-12 in the wake of pressure national economy is facing due to inflation, massive unemployment, and uncertainty. Policies should result in investment and employment generation, fund development expenditure and increase productivity.

Tax legislation should be simple, transparent, and efficient to bring the business community in tax net. In many developed countries, tax to gross domestic product (GDP) is high which causes increase in their annual growth rate, while our tax to GDP is very low.

This was summary of views expressed by the business leaders and others while talking to PAGE with reference to budget 2011-12.

They maintained that major portion of our budget was prone to debt financing, defence, and running of public sector enterprises, which placed huge burden on the country's fiscal framework.

According to them, Pakistan has unequal distribution of taxes due to lack in policy or inability of system to collect taxes, which have been levied. Tax gap is a difference between tax levied and tax actually collected and we collect only 50 percent of the total tax levied. Transparency in the taxation system could help to plug the loopholes. They demanded the establishment of budget regulatory authority formation of a think tank to oversee the economic affairs and sought an end to practice of mini budgets.

They said that there should be a system of regulatory and audit system. They said that the big fish should be brought within the tax net instead of imposing wealth tax. The cruel clutches of the IMF and the World Bank can be thrown away only if we focus on development of indigenous resources, they said.

They also called for separation of economic decision-making from politics. They demanded that the agriculture should be declared as industry and policy attention should be focused on this vital sector of economy.

The LCCI President Shahzad Ali Malik said that government had to take business community on board in the budget-making process. He said that wealth tax should not be imposed as its imposition would cause devastating effects.

He said that trust deficit between the taxpayers and the tax department officials has to be removed for widening the tax base. Tax system has to be simple and consistent, it must not be revamped each time a new government comes in, adding that tax collectors should collect taxes without any harassment. We need to improve our fiscal policy and bring tax reforms in the country, he added.

Former Chief Economist of Pakistan, Dr Pervez Tahir said that the World Bank had spent millions of dollars for revamping of FBR, but it failed to achieve the desired results. "For the past many years, tax-to-GDP ratio has remained stagnant that stands around nine percent; this reflects taxpayer's unwillingness to pay taxes and incapability of tax machinery to increase tax base," he added. Hence, he advocated that the government should replace FBR with an independent revenue generation body that works directly under the command of Council of Common Interests (CCI), and has no government and political control. "It would be responsible for all federal and provincial tax collections," he added.

According to him, the government most likely would not receive any foreign assistance, and thus it has to focus only on taxes and internal resources in the forthcoming federal budget 2011-12. There was dire need to develop economic consensus among all political parties.

He pointed out that after the passage of 18th Amendment now provinces had more autonomy, now provincial budgets were even more important than federal budget to review the overall economic situation as after the NFC award in the next financial year provincial share would be 57.5 percent.

Dr Pervez underlined that the government was expecting 2.4 percent economic growth this year, but in fact, the country would have zero percent net growth as growth projections would be cancelled out with population growth. He warned that in such circumstance when the country had zero growth rate, there was no chance of development.

Highlighting the causes of low foreign direct investment, noted economist Dr Qais Aslam said that low transparency, poor governance, large transaction costs because of inefficiency of institutions and administrative bottlenecks were main hurdles. In addition, terrorism, law and order, poor country profile, lack of skills and education, low implementation of standards and lack of infrastructure and energy were other impediments.

Dr Qais said that the country had tremendous untapped energy resources including fairly sizable natural gas reserves, some proven oil reserves, coal (Pakistan has the fourth-largest coal reserves in the world) and a large hydropower potential. It also has solar and wind as well as uranium power generation potential, but the owing to mismanagement the country was facing severe power shortage.

He underlined that direct taxes should include incomes from all sectors of the economy and income tax should be levied after a lower slab of Rs500,000 per annum. He suggested that income tax of 50 percent should be levied after an upper slab of Rs5 million per annum and wealth tax on property worth above a minimum slab of Rs100 million should be introduced.