Complete departure of the past formula budgets

From Shamim Ahmed Rizvi, Islamabad
May 08 - 21, 2000

Preparation of the budget for the financial year 2000-2001 is in the final stages as the concerned financial wings of the government have completed the task of examining the proposals for the next budget pouring from all over the country. Suggestion received from Federation of Pakistan's Chambers of Commerce and Industry, Council of Textile Association, Tax Bar Association, Institute of Cost and Management Accountants and various other Associations of Industries have received due consideration by the Authorities who are giving final touches to their recommendations in the Ministry of Finance. Final proposals will be drafted for presentation to the cabinet after consideration of Finance Ministry, recommendations by Economic Advisory Board (EAB). The budget is likely to be announced in the first week of June. Contrary to past practice the taxation proposal will be effective from July 1.

It is, however commonly believed that the budget for the coming financial year will be innovative having many new features of its own in complete departure of the past formula budgets. On different occasions the finance minister has hinted about the changed complexion of budget document. He has said the government was aiming at a quantum jump in the revenue generation despite reduction in the number of taxes. This he wants to achieve by broadening the tax net, identifying tax evaders, curbing smuggling and cleansing the tax collection machinery. At the same time he wants to curtail unnecessary state expenditure. He aims to ensure that tax payer money is used for carrying public welfare projects only. Budget makers are also under direction to ensure that tax laws are made simple, short and easy to understand and free of intricate provisions. The recommendations of Tax Reform Committee duly approved by Economic Advisory Board (EAB) will be fully implemented in the next year budget.

The Central Board of Revenue (CBR) are expecting a giant leap of about Rs. 100 billions in the tax revenue during the next financial year. The revenue target for the fiscal year 2000-2001 is being proposed as Rs. 450 billion as against Rs. 360 billion (apparently difficult to meet) for the current financial years. This quantum jump is being justified due to on going efforts of the government to curb smuggling, documentation of economy, strict levy of general sales tax GST across the board and nabbing of tax evaders and discovery of concealed wealth through nation wide tax surveys.

The Ministry of Finance and the Central Board of Revenue are hopeful that their survey to identify tax evaders and defaulters will yield positive results. While addressing the members of Gujranwala and Sialkot Chambers of Commerce and Industry, the Finance Minister. Mr. Shaukat Aziz, categorically announced that the budget for the year 2000-2001 would be investor friendly and the number of taxes both federal and Provincial would be cut drastically. "The federal taxes will be reduced to only three i.e Income Tax, Sales Tax and Custom Duties, while provincial taxes will be cut down from existing 22 to eight only", he added. The Finance Minister said that the likely short fall in revenues because of abolition of many taxes will be met through broadening the tax net, nabbing tax evaders, curbing smuggling, documentation of economy and strict implementation of GST across the board. The government would bring new tax payers into net who would be provided a number of incentives and facilities he said adding that the government has targeted four areas—self reliance investor confidence, poverty alleviation and good governance—and this approach would be fully reflected in the next year budget document.

Briefing newsmen on the "National Tax Survey (NTS) member sales tax Mr. Sarfraz said that CBR expects to collect additional revenue of about Rs. 100 billion through NTS. Explaining the broad modalities of the survey which is to be launched by end May, Sarfraz said that he hoped to net half a million new tax payers, as a result of this 3 stage exercise. Mr. Sarfraz disclosed that a command and control centre has been established at the Army Aviation headquarters to watch and regulate the whole process. He announced that a proposal of two per cent turnover tax to all the sales taxpayers at retail stage was being considered to induce tax compliance. This facility would be for a year.

In the first phase, to be completed in 90 days, survey teams—spearheaded by army and taxmen and accompanied by magistrates and independent chartered accountants—would visit commercial areas and the posh residential areas of the 13 selected cities.

Survey teams would distribute forms at commercial and residential areas, and would re-collect the same within a week.

At commercial areas, questions would be asked about the ownership or rental value, utility bills, stocks, turnovers, employees and other overheads. At Residential places, questions would relate to ownership, rental value, educational expenses of the children, sources of income, details of fixed assets and utility bills.

In the second phase, Sarfraz said, the survey would be expanded to all areas of the 13 selected cities. This phase would be completed by the end of December. The third phase would lead to a nationwide survey exercise to be completed in a year.

He hoped the NTS would lead to substantial gains in the tax collection. He claimed that the International Monetary Fund (IMF) expects that Pakistan can achieve Rs. 456 billion tax revenue during the fiscal 2000-2001 as a result of this survey.

However, he claimed that the real potential was much larger than this. Sarfraz claimed the CBR expects to net Rs. 44 billion each under sales tax and income tax, Rs. 12 billion in Custom duties at the end of the first stage, with some minor gains in other areas. He also claimed that the NTS exercise would help Pakistan to come out of its constrained fiscal situations. The CBR has already trained 1,280 taxmen and 218 army personnel to conduct this exercise. The whole record would be computerized and follow up measures and all the other records would be saved for future analysis and assessments.

He announced that the survey plan would be launched as part of a new tax package to be announced by the Finance Minister Shaukat Aziz in May. There are hopes that this package would also include some incentives for declaring incomes and assets under the Tax Amnesty Scheme that has already been extended to June 15.

Official sources told that the tax reforms committee headed by former advisor on finance Dr. Hafeez A. Pasha has proposed tough measures for improving the revenue collection. The government has already decided to take "ruthless measures" in the next budget to broaden tax base, specially by effectively recovering income tax, GST and agriculture income tax.

The initial recommendations of the Pasha committee, called for collecting at all costs general sales tax (GST) from the next financial year for which the system was being simplified. A number of new measures would be announced in the new budget to deal with the issue. Similarly, the government has been proposed to adequately tax the landed gentry so that considerable tax on agriculture income could be recovered from the next financial year. The collection target of Rs. 2 billion set by the previous government was termed as highly inadequate in this behalf.

According to the officials of the ministry if the target of additional Rs. 100 billion is achieved the current crisis of resource mobilisation can come to an end and the national economy dependent on external assistance would be able to stand on its feet. Based on these figures the next year budget may have a historic allocation of about Rs. 140 billion for annual development programme.

However, some tax experts commenting on CBR proposed surveys said it was difficult to understand as to why such a survey was being carried out when all relevant information about taxpayers and new assessees could be collected from such bodies as KDA, LDA, CDA, CCI, and telephone department & WAPDA etc. They asked as to why the authorities were not seeking such details for initiating servicing of tax demands. These experts are of the opinion that these surveys are only dilatory tactics of cunning CBR officials who are keen to save their own skin by misdirecting the present government and involve them in new tussles with general public. According to them the efforts of the government to generate additional revenues cannot materialise unless the tax collection machinery is cleansed of corrupt elements at all the level.

This view was largely substantiated when traders, during a meeting with CBR officials under the auspices of Ministry of Interior also attended by senior army officers as aboervers, openly demanded a survey of property and assets of all retired and serving officials of the income tax, custom and central excise departments as well as high officials of CBR by Army intelligence agencies. The traders claimed that officials owned assets of billion of rupees which all come under the concealed wealth. Once such a survey is done by the army and guilty official punished every trader in the country will welcome the survey teams of CBR to their premises "to check our assets, stock property and income on the spot".

The demand made by the traders has lot of sense. They do not want any immunity for themselves. They are only demanding that all those receiving commission, kickback and bribe from them should also be made accountable. These "wolves' should not be let loose on them again. The ppresent government should consider to unearth the wealth and assets of all serving and retired officers of the CBR, custom, income tax, central and provincial excise, police, PWD, MES and all those connected with defence purchases, IB & ISI through special monitoring teams headed by senior army officials. If it is done it would cleanse the society by about 50 per cent.