Missing out on lucrative tax avenues

January 22, 2021

LAHORE: We are still targeting industry that has 17 percent share in GDP, with 70-73 percent share in total tax revenues. Remaining sectors, accounting for 83 percent of the GDP, contribute only 27...

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LAHORE: We are still targeting industry that has 17 percent share in GDP, with 70-73 percent share in total tax revenues. Remaining sectors, accounting for 83 percent of the GDP, contribute only 27 percent in tax revenue.

Agriculture is a sacred cow that politicians dare not touch. It accounts for 21 percent of our GDP and contributes only one percent in total taxes.

Trade and transport have the same weight of 17 percent in GDP as that of industry, but contribute only 1.2 percent in total tax collection. And why do we ignore the stock market capitalisation that is equal to 28-30 percent of the GDP? Its contribution in the taxes is only 0.03 percent.

Why are lucrative service providers like doctors (55 percent of the total healthcare cost goes to them) not being brought into the proper tax net? Doctors are paying less tax than the pharmaceutical companies that contribute only 12 percent in the treatment cost of an average patient.

Moreover, the pharmaceutical companies provide manufactured products that have some cost while doctors provide services only (that have no material cost).

Pakistan’s imports are more than double its exports. This clearly indicates that trading volume in Pakistan is at least two times higher than the exports.

Moreover, whatever industry produces is disposed of domestically through traders (barring exports). Traders also sell products produced by the informal sector that is large if not more than the industrial sector.

Smuggled goods are also sold through the traders’ outlets. Gross transport revenues around the country are as high as that of the daily output of the industries.

How come their contribution in total tax revenue is so low? We need to probe these questions and take appropriate steps to generate as much revenue from traders and transporters as we generate from the industry.

It is worth noting that the industries also try to evade taxes by under-reporting production. Tax collection from industries increases when the loopholes in the monitoring systems are plugged through technology.

We must not let anyone under-report the

actual income, but at the same time we should not over tax them. In most cases, under-reporting of production is done to compete with unethical imports (huge under-invoicing) and smuggling.

Revenue staff should concentrate more on eliminating under-invoicing and smuggling to provide a level playing field to the local manufacturers.

The dilemma in this regard is that the traders openly sell smuggled and under-invoiced items at a slightly less price than their local variants.

The efforts that FBR makes to unearth tax evasion by the industry should be made in eliminating the sales of smuggled items by the traders.

Currently, any attempt by them to raid the premises where smuggled items are sold or stored is strongly resisted by not only the traders but also by the chambers of commerce and industry.

Traders argue that the government should plug smuggling from the border points and not raid the shops that sell smuggled goods. It is pertinent to note that there is no country in the world where 100 percent effective border control against illicit trade (smuggling) has been imposed.

Goods do find their way into the markets ’around the world. But all other countries ensure that the smugglers do not capitalise on lapse at border points.

No shopkeeper dares openly display smuggled goods in India or in numerous other countries. Smuggled goods are confiscated or destroyed, and the sellers are booked for abating with smugglers.

Smuggling would first slowdown and then stop if the retail outlets are firmly controlled. Traders must be forced to issue receipt of all sales deducting the sales tax as mandated by law. It would put an end to both smuggling and under-invoicing.

All the major cities in the world are run mainly on the property tax collected by the city governments. In our country the evasion of property tax is common.

Plugging it completely is possible because each property is not visible through global positioning system (GPS).

Coming to the stock market we see that for years market players accumulated their wealth with a huge increase in market capitalisation. Many large brokers are billionaires many times over and some of the richest men in the country.

They should be taxed according to their income. Stock market should at least contribute Rs200 billion annually to the national exchequer instead of current few billion rupees.



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