CBR: NEW STRATEGY
The CBR Chairman called for consistency in the economic policies
From SHAMIM AHMED RIZVI,
Apr 19 - 25, 2004
As a part of on-going budget exercise for the next (2004-05) fiscal year, the Finance Minister Shaukat Aziz had a long meeting with the officials of Central Board of Revenue (CBR0 for formulating revenue generation estimates for the next financial year.
The CBR is faced with a dilemma. On one hand the government intends to lower the rate of taxation in some sector but at the same time desires to have a quantum jump in the revenue generation. The target of Rs. 510 billion set for the current year is likely to be met easily. Next year target is required to be fixed somewhere around Rs. 550 billion along with suggestions for some reduction on various levies.
The common suggestion on these occasions is a plea for reduction, if not withdrawal, of various levies. And the routine government response so far has been to ignore almost all such demands on grounds of resource constraints. That situation has now changed in view of the fact that macroeconomic indicators have registered an appreciable improvement, and there is a growth, which has created the necessary fiscal space for the government to ease off things a little. Concurrent with this betterment process is a growing realization in the government quarters of the urgency of addressing the problem of pervasive poverty.
As the CBR Chairman himself noted at the RCCI seminar, at present there are only 1.1 million taxpayers out of a population of over 140 million, a very small number, that is, of contributors to the rational exchequer. Seen from the other end, these figures show that so far the tax policy has been guided by expediency of collection, i.e, it has been subjecting a small section of the taxpaying public to a heavier burden of taxes, which is neither fair nor conducive to economic growth. Particularly hurtful has been the practice of heavy taxation of the production inputs, such as the surcharge on petroleum products and gas. Fuel being a major factor of production, the surcharge gets reflected in the cost of all kinds of products, driving them out of the reach of poorer sections of society. While stressing the need to reduce poverty and unemployment, the CBR Chairman called for consistency in the economic policies, which, of course, is a basic prerequisite of any plan for development. But what can also stimulate growth and bring about a downward movement in the ever soaring price indices and consequently make it easier for the common man to make ends meet, is a reduction in taxes on production inputs.
Another tradition of the taxation system, again, on account of expediency of collection, has been the preference for indirect taxation. The indiscriminate application of General Sales Tax (GST) instead of making economic sense, in certain instances looks rather silly. A case in point is imposition of GST on fertilizers and pesticides — essential inputs for most food items. While on the one hand the government fixes a support price for various farm commodities such as wheat, sugar and rice, and intervenes to buy these in the event of the market price falling below the prescribed rates, the inputs for this sector, on the other hand, are subjected to GST. To say the least, it is illogical to slap a tax on something that the government finds itself obliged to support out of its own resources. In fact, the government can actually reduce poverty and at the same time provide a stimulant to the production sector by doing away with GST on crop inputs.
Yet another important argument in favour of reduction/withdrawal in certain taxes is that we would soon be entering regional and global trading arrangements under SAFTA and WTO. That will require a high level of competitiveness, which will become difficult to attain with the present harsh taxation regime together with excessive costs of inputs like electricity, gas and petroleum products as well as certain other factors of production. Hence it is imperative that the government use the new fiscal space that has become available to it to give a much needed relief to business and industry, which in turn can also lessen the pressure of rising prices for the poor.
The only way out available to the CBR to meet the two conflicting demands is to ensure a sizable increase in the number of taxpayers, effectively checking the tax dodgers and tax concealment and improving the efficiency and honesty and integrity level of tax collecting machinery through on going reforms. The newly appointed Chairman of the CBR himself noted at a seminar at the Rawalpindi Chamber of Commerce & Industry last week, that there were only 1.1 million tax payers out of a population of over 140 millions. "That is a very small number of contributors to the national exchequer", he said adding "the psyche of evading tax is ingrained in our country". The new CBR Chief, Abdullah Yusuf, however, aims to achieve the enhanced revenue collection through restructuring and reforming the CBR and adopting a business-friendly approach. The tax base can be broadened by giving confidence to the business community. The CBR Chief firmly believes.
Explaining his vision about taxation policy in a frank and candid manner, Abdullah Yusuf said conducive environment for investment, business-friendly policies, mutual trust and understanding between tax collecting machinery and business community, consistency in policies to minimize poverty and unemployment and high growth rate are prerequisites for increase in tax collection. "Fixation of targets is not so significant, focus should be on prerequisites to achieve better results", he observed.
He said the reforms agenda in CBR is continuing after approval of reports complied by economists Saeed Qureshi and Shahid Hussain and Ordinance was issued in 2001. The CBR Chairman said the reforms being introduced in the tax regime will have positive results and response from taxpayers. Automation in tax regime, introduction of Universal Assessment Scheme, strong and complete data base of taxpayers, reducing slabs and a programme to install strong scanners to check leaving and arriving containers to eliminate manual checking and simplifying cumbersome procedures and return forms will develop a mutual trust which will definitely help to expand base of taxpayers. People want to give tax but they expect respect and honour. In the present system "the genuine taxpayers suffer while the non-genuine persons got CBR to suffer". We have to restructure the system for mutual benefit, he remarked.
He said the CBR will trust the taxpayers and returns filed by taxpayers under Universal Assessment Scheme. However, he said, a random check will be introduced to scrutinize 3% cases only. A plan is underway to install scanners with the help of NLC to check containers with the objective of eliminating manual checking to make the system transparent. Similarly in customs regime the procedures will be transparent and simple to avoid any unnecessary delay.
Referring to thousand of pending cases on the appellate side and in higher courts, some of them are decades old, he said. Task force will be set up to look into all the cases and a policy will be formulated to dispose of those cases keeping in view their stance and how much they are beneficial to the CBR. Steps will be taken to substantially reduce the level of litigation. Presently, he said 43000 appeals are at commissioner level only. A dispute resolution mechanism will be introduced to substantially cut down litigation.
He said five MTUs will soon be established in the country for the benefit of the people. GST refund system and export duty drawback are also being computerized and strengthened to avoid delays which invite corruption. Drastic measures are underway to minimize human contact between CBR officials and taxpayers, he said.
A strong database has been established containing details of tax returns and information about the taxpayers. Besides, the CBR has also a strong database about the people belonging to different classes but he said no threatening posture will be adopted to bring them into tax net. It will be done by properly communicating with them, he added.
According to a press report hardly 10 percent of the 4 lacs recipients of new National Tax Number in 2002/03, after documentation of economy exercise, have filed tax returns. To begin with the CBR has started issuing notices the defaulters asking them explain why they failed to file their returns. Over 20,000 of such notices have already been issued.