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Federal Tax Revenues

  1. Sharp decline in edible oil prices
  2. Snail's pace of privatization process
  3. Federal tax revenues
  4. Rescheduling of PICIC loans
  5. Islamic stock market indices

Past trends and strategy for future

From YOUSAF RAFIQ Special Correspondent, Islamabad
Sep 06, 1999

There is an ever-increasing demand for enhanced resource mobilization. In the Federal budget for 1999-2000, tax revenue receipts of Central Board of Revenue have been projected at Rs 356 billion as compared to the net tax collection of Rs 308 billion for the year 1998-99. The tax-to-GDP ratio that had touched a maximum of 14.3 per cent in the year 1988-89 declined to 12.7 per cent in 1997-98 as against the average tax-to-GDP ratio of around 18.5 per cent. Pakistan Institute of Development Economics (PIDE) has estimated in 1998 that the size of the parallel economy has risen to the level of Rs 1115 billion for the year 1995-96. Since the government is deprived of its revenues, greater need is being felt to enhance resource mobilization through sustained policy initiatives.

Trends in tax policy

Tax policy trends in the past have invariably bordered on adhocism, placing undue reliance on expediency and making compromises in developing a sustained tax policy direction. Seen in this perspective, various incentives offered in the shape of liberal tax holidays, fiscal concessions and exemptions, whitener schemes etc have failed to give the desired boost to the economy, thereby seriously impeding the growth of revenues. These policy directions have resulted in lack of tax elasticity and narrowing down of tax base. Other factors blocking the revenue growth can be identified as complexity and multiplicity of taxes, inadequate usage of information technology, lack of documentation, absence of tax culture, narrow tax base, large scale tax evasion, corrupt and inefficient tax machinery etc. These structural weaknesses have resulted in low tax-to-GDP ratio, and a low tax elasticity of around 0.8 per cent, over reliance on indirect taxes and inefficiency of tax administration.

Tax reforms are now directed towards enhancing the role of direct taxes and GST in the total tax efforts. The results, according to the Central Board of Revenue, are encouraging. For example over the last one decade, the change in the relative shares and weights of different taxes is quite obvious. The share of direct taxes in the total taxes has gone up from 15 per cent in 1989-90 to 35.7 per cent in 1998-99 while the share of sales tax has gone up from 17.8 per cent to 23.3 per cent in the comparable period. Whereas, the share of central excise has been relatively stable, at around 20 per cent, the share of customs has gone down by a substantive margin from 46.6 per cent in 1989-89 to 21.2 per cent in 1998-99.

New policy directions

According to the Finance Minister's Budget Speech (1999-2000), fiscal policy is not meant only to collect taxes to meet government expenditures but also a means to achieve, socio-economic development, self-reliance, improvement of national resources, equitable distribution of wealth and progress of private sector. Prime Minister's Housing Scheme and Urban Transport Strategy are in the same policy direction. The other policy statements focus on creating a taxpayer friendly environment, enlarging the base of taxation to bring in new sectors and persons into the tax net, promoting tax culture with respect and reward for honest taxpayers and exemplary punishments for the corrupt ones, creating conditions for effective enforcement against tax evasion, adopting suitable measures for taxpayers education and public awareness, increasing efficiency of tax collectors under a just policy of quick rewards and swift punishments, enforcing the process of accountability and grievance handling through the Federal Tax Ombudsman, and making the whole system of taxation fair, simple and equitable so that the incidence of tax falls on the persons having capacity to pay and they are induced for voluntary tax compliance.

New measures and future programmes

A comprehensive CBR restructuring programme has been initiated. The major steps taken in this regard include introduction of a legislative for the creation of Pakistan Revenue Authority that will have adequate administrative, financial and functional autonomy. The proposed Pakistan Revenue Authority Bill 1998 has been evaluated by the National Assembly's Standing Committee on Finance and placed before the National Assembly with its report. The Universal Self-Assessment Scheme has been introduced as a simple, convenient and workable solution to the problem of voluntary tax payment. More classes of taxpayers have been relieved of the cumbersome and lengthy procedure of normal assessments and covered under the Presumptive Tax Regime. Firm commitment is made to eliminate tax evasion by unearthing concealments of income through effective checks and special audits, including outsourced audit by professional firms. Private agencies outside the Tax Department are being employed to discover and enroll new Income Tax and Wealth Tax assessees. The government has rationalized duty drawback rates of over 300 items, reduced the number of SROs relating to duty drawback from 114 to 4 and reduced maximum rate of customs duty from 45 per cent to 35 per cent. M/s Phillips have been awarded a contract to operate closed circuit TV cameras and X-ray Scanners for baggage check at the airports. The Scheme of Common Taxpayer Identifier Number (CTI) has been introduced for integration of Federal Taxes, detection of non-filers, delinquent accounts and cross checking of information. The Inquiry Wing of CBR is being strengthened to effectively conduct inquiries and investigations against corrupt and inefficient tax functionaries. The goal of the government's medium term program is to raise tax revenues to 17-18 per cent of GDP, make the tax policy more equitable and elastic, put in place a more efficient and responsive tax administration, reduce tax evasion and widen the tax base to collect more tax revenues.