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Decline in revenue collection

  1. Closure of coal mines
  2. Import of cotton affecting local prices
  3. Decline in revenue collection
  4. Salt problems in irrigated soils
  5. Changes in corporate and income tax rates

Post-budget seminar holds massive tax evasion, large scale smuggling and rampant corruption responsible for shortfall

From Shamim Ahmed Rizvi,
July 05 - 11,1999

There was a consensus at a post-budget seminar, organized in Islamabad by Daily Observer, that large scale smuggling, rampant corruption in the tax collection and massive tax evasion were the root causes for gradual decline in the revenues.

It was pointed out that revenue generation has been almost stagnant during a period from 1995 to 1999 despite sizable increase in the GDP. The preceding period of 1990-95 registered a growth rate of about 15 per cent in revenue generation. Savings rates are declining and dependence on borrowed money, both domestic and foreign, was on the increase. About 30 years back, debt servicing amounted to seven per cent of total budget which now has exceeded 42 per cent while development budget has come down from over 45 per cent to about 18 per cent during the same period. The gravity of situation could be judged from the figures of budget 1999-2000 in which total revenue receipts of about Rs. 423 billion has fallen short of meeting the expenditure two items i.e. the debt servicing and defence (Rs 287 + Rs 145= Rs 432 billion). For all other expenses we are depending on borrowed money. If the present state of affairs continues, it is feared that after another few years our entire revenue receipts would be hardly enough to meet the debt servicing alone. We have to take drastic measures, change the outdated corrupt system, deal with an iron hand and strong political will with the tax evaders, smuggler, and bank defaulters, use the latest technology to net tax dodgers and make sure that every segment of the society and every individual pays what is due to the state. If this is not done on urgent basis the country would collapse economically. Viewed in this context, it is really criminal to keep the landed aristocracy out of tax net and the government's continued protection to this important segment of potential tax payers because of political consideration is really condemnable.

The budget 1999-2000 has a total outlay of Rs. 642 billion against the total net receipt of 423 billion including Rs. 356 billion to be collected by the Central Board of Revenue (CBR) which could not collect even Rs 300 billion during the financial year 1998-99. Being tax free budget, how CBR is expected to collect Rs. 356 billion, is a question yet to be answered. It is reported that the Prime Minister who is hesitant to allow levy of 15 per cent general sales tax (GST) on services sector is asking for Rs. 100 billion for his development programme as well.

The planners do not know how to arrange funds for the next fiscal year. They also do not know how to make Rs. 100 billion available to the PM for his development projects. The PM is said to have told the finance minister that he needs at least additional Rs. 100 billion to revive the yellow cab scheme, tractor scheme and motorway, airports and the housing scheme.

The government continues to maintain that it does not intend to use for the budget the funds that it has saved by not paying back loans to the international donor agencies after having them rescheduled from January this year to December 2000. But sources claim that the government has no option but to use these funds for development purpose especially for the next budget. Also it is said that the sale proceeds of the privatization programme would be used for the budget. The cabinet had taken a decision in the past that it would use 50 per cent sale proceeds of the privatization for debt retirement and the remaining 50 per cent for development purposes.

If the government does not impose new taxes, it would mean that the sale proceeds of the privatization programme are going to be grossly used for the budget. Many claim that Chairman Privatization Commission, Kh. Asif has been asked by the Prim for mortgage uling of debts to meet our budget deficit. It must be used for retirement of debts. Similarly privatization proceeds should also be used only for retiring of debts and for no other purpose.

In order to meet the revenue shortfall in the budget 1999-2000, we should immediately bring farm income into normal tax net. It may yield 30/35 billion rupees in the first year to meet the shortfall to a large extent. The Prime Minister should give a target of recovery of at least Rs 100 billion from the stuck up loans of over Rs 250 billion for the next year and that could be used for PM's development programme. Besides these measures, a task force comprising professional experts from private sector should be set up to suggest short and long-term measures to eliminate smuggling and tax evasion and restructuring of present CBR and tax collecting machinery and tax structure in order to make it simple, transparent and corruption-free. It is estimated that if tax evasion is effectively checked, smuggling is curbed and every body starts paying his share of taxes, the revenue generation could be doubled which would definitely solve the problem of resource constraints.