Complete departure of the past
From Shamim Ahmed
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 areasself reliance investor confidence, poverty
alleviation and good governanceand 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
In the first phase, to be completed in 90 days, survey
teamsspearheaded by army and taxmen and accompanied by magistrates and independent
chartered accountantswould 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.