TAXES ARE 10 PERCENT OF $125B PAKISTAN GDP

Country's future lies in sustained high growth rat and it is in the interest of business community to let it happen

By AMANULLAH BASHAR
Mar 27 - Apr 02, 2006

The Chairman CBR, Abdullah Yusuf, has called for enhancing tax to GDP ratio in order to generate enough revenue, which could help government to inject required money in infrastructure essential to increase our exports. The Chairman expressed these views while first speaking at the launching of book on Sales Tax written by Mohammad Saeed Nashir and later addressing the business community at LCCI.

Abdullah Yusuf observed that at present tax to GDP ratio stands at 10 per cent. No doubt, revenues have now increased as our GDP was $65 billion some six years ago and now it is $125 billion. CBR share has also been increased as the cake has become bigger and it would be a happy sign if we could be able to enhance tax to GDP ratio also from present 10 per cent to 12-15 per cent.

The Chairman CBR emphasized that the country's future lies in sustained high growth rat and it is in the interest of business community to let it happen. He said that the Central Board of Revenue is striving for making the things simpler but the need of the hour is that the business community should remove all apprehensions about the CBR and should work in close coordination with this department. Talking about under-invoicing and smuggling, the Chairman said that the chamber should prepare committees, which could pin point, the smuggling-prone and under-invoiced items to curb this menace. Regarding under invoicing on items being imported from China, he said that the CBR had signed a bilateral agreement with Chinese customs, so as to exchange information electronically regarding the prices and quantity of items being import or export. He also disclosed on this occasion that self-assessment scheme was also being introduced in customs like other taxes. He said that a project was already under implementation on Karachi International Container Terminal (KCIT) with the name of CARE.

It would be replicated on other ports too. He said that it would help reducing the customs clearance time from four and half days on average to only 10 hours on average. He said that this clearance also remove the need of physical contact of the importer with the officials curtailing the chances of any corruption. He said that concept of one customs would also be introduced which might take one to one and half years. Later talking to newsmen, he expressed the hope that CBR would not only achieve the revenue target of Rs. 690 billion but would also surpass it. To another question he stated that it was not his purview. Speaking on the occasion, the LCCI President Mian Shafqat Ali said that the biggest challenge for the government remains to check properly the acts of smuggling and under invoicing. The porous borders of India and the aftermath of Afghan-transit trade are all the more on the rise, however, though its affects are being felt, it is difficult to document the volume. In last financial year under-invoicing in our import from China has arisen to the staggering figure of almost $ 1 billion. Giving the biggest jolt to the national exchequer and resulting in shutdown of several small manufacturing units. Conformance to international trade regimes may be important but not at extent of taking the breath away from the local manufacturer, and that too due to under invoicing and smuggling. He said that unlike other countries where tax holidays are frequent to protect new industries, the situation in Pakistan is otherwise. The LCCI President assured the CBR Chairman that once CBR team starts work in collaboration with the business community, the government would be able to achieve the revenues of Rs. 1000 billion annually. He also suggested that instead of taking advance taxes, only income should be taxed. Mian Shafqat Ali called for lowering tax structures and keeping the policies unchanged for five years. Once the policies are made, all stakeholders including tax collectorate, and business community is provided training for comprehensive understanding of the system, so that no one could take advantage of the ignorance of any party. The LCCI Senior Vice President Abdul Basit called for taking immediate step to bring out poultry sector from the crises. He said that industry was loosing Rs. 500 million per day and the crises further deepen in time to come. He said that there should be a separate counter for businessmen on every airport to help them in early immigration clearance. Former LCCI President Sheikh Saleem Ali urged the Chairman to constitute a permanent commission or committee to review fiscal laws including Income Tax Act, Sales Tax Act, Customs Act and other allied laws for simplification and to encourage speedy decision in any sort of disputes. LCCI former President Sheikh Mohammad Asif was of the view that the revenue collection would double once the under invoicing and smuggling is controlled.

Meanwhile, the Member Sales Tax, Shahid Ahmad has indicated that an SRO is in the pipeline to solve the issue of Sales Tax refund to all the five zero-rated sectors who are paying 15 per cent Sales Tax on import of raw material for their finished product at import stage.

Collector Sales Tax Nazim Saleem, Collector Large Tax Payer Unit Mohammad Ashraf, LCCI President Mian Shafqat Ali, Senior Vice President Abdul Basit, Vice President Aftab Ahmad Vohra, former President Bashir A Buksh, Sheikh Mohammad Asif and Mian Anjum Nisar also addressed the meeting held at Lahore Chamber of Commerce and Industry last week.

The Member also assured the Lahore Chamber of Commerce and Industry (LCCI) that the issue of delay in Adjustment Advice has now been solved and it now would be issued in single day as the technical hitches have been surmounted. On the carry forward issue, the Member said that the Lahore Collectorate would very soon arrange a workshop for commercial importers to clear the position. Shahid Ahmad said that the Central Board of Revenue is working in a sort of partnership relationship with the Lahore Chamber of Commerce and Industry and it needs its help on quite a few day-to-day operational issues. The Member urged the LCCI office-bearers to forward their budget proposals to the CBR as early as possible as the exercise for the preparation of budget has been started. Speaking on the occasion, the LCCI President Mian Shafqat Ali said that as per Rule 6 of SRO 666(I)/2005 dated 30th June 2005, an Adjustment advice upon automated scrutiny is to be issued to the claimants within 10 days of claims. However, the on ground reality makes this provision impossible since claims received undergo the process of verification involving system generated objections, which can only be cleared by the system alone. The objections generated by the System, mostly relate to non-availability of data in the Central System. For instance, a common objection relates to non-availability of invoice summary or lack of claimants' name in the summary of his supplier. When the concerned registered persons show attested copies of their invoice summaries or invoices issued in their name showing the said transaction. However, the system does not allow any manual overruling even where evidence making the objection invalid generated by the system is submitted. The problem is compounded where, upon show cause, the claimant submits the evidence of his transaction. Yet there is no option to decide his case judiciously since the system-raised objection can only be removed through the system itself. Practical experience has indicated that most of the system related objections are generated, not due to the claimant but lack of data on time. Speaking on the occasion, the LCCI Vice President Aftab Ahmad Vohra said that NIFT registration should be for one-time instead of on yearly basis. He also urged the Member Sales Tax Shahid Ahmad to allow commercial importers filing of returns on quarterly basis instead of on monthly basis.

TAX/GDP COMPONENTS OF CBR REVENUE

(PERCENT)

.

INDIRECT TAXES

FY

CBR TAXES

DIRECT TAXES

SALES TAX

CUSTOMS

EXCISE

TOTAL

1999-00

9.2

3.0

3.1

1.6

1.5

6.2

2000-01

9.4

3.0

3.7

1.6

1.2

6.4

2001-02

9.2

3.2

3.8

1.1

1.1

5.9

2002-03

9.6

3.1

4.0

1.4

0.9

6.4

2003-04

9.4

3.0

4.0

1.6

0.8

6.4

2004-05

9.0

2.8

3.7

1.8

0.8

6.2