Money Matters

Can tax jack slay the giant target?

Money Matters
By Mehtab Haider.
Mon, 06, 19

With the increased incidence of taxation and tougher enforcement mechanism, the incumbent regime aims to achieve one of the highest revenue growth targets in the next fiscal year, a move that will mount inflationary pressures to a crushing level for the financially compromised.

With the increased incidence of taxation and tougher enforcement mechanism, the incumbent regime aims to achieve one of the highest revenue growth targets in the next fiscal year, a move that will mount inflationary pressures to a crushing level for the financially compromised.

Against the revised estimates of Rs4,150 billion in outgoing fiscal year, the FBR is eyeing to collect Rs5,550 billion in next fiscal year 2019-20, requiring a growth of 35 percent. Even the parliamentarians have termed this budget highly inflationary especially senators in the Upper House rejected all those clauses of Finance Bill 2019-20 that are linked to increasing inflationary pressures.

Senator Taleh Mehmood stated during the proceedings of senate panel that the government would have to construct new jails for putting 5 million people behind the bars because the FBR has proposed such harsh measures in the budget that everyone would be forced to become evaders.

The business tycoons are quite perturbed, mainly because of government’s firmness on account of withdrawal of zero-rating regime for five export-oriented sectors including textile, garments, carpets, surgical, and sports goods, and second government’s decision to remain steadfastness for disallowing input adjustments for manufacturers without provision of Computerised National Identity Cards (CNICs). The government might allow Rs 0,000 sale for retailers but otherwise the government had refused to budge before the pressures of business community.

The textile tycoons claimed that abolishing zero-rating regime would affect the exports negatively by 25 to 30 percent.

The textile sector representative Zubair Motiwala lamented that the government rescinded Statutory Regulatory Order (SRO) 1,125 through Finance Bill 2019-20 and demanded restoration of zero-rating regime.

“At the time of zero-rating regime, the stuck refunds and other liabilities with the government stood at more than Rs200 billion and it is not difficult to imagine how much of those refunds will balloon after imposition of 17 percent GST,” Motiwala said.

He also argued that the imposition of 17 percent GST on textile would lead to a surge in smuggling under the guise of Afghan Transit Trade (ATT) and added that they had recently helped the FBR seize 75 containers loaded with smuggled products.

The government concedes that the stuck refunds are a major problem area so they are now devising new repayment procedure, which will be linked with State Bank of Pakistan and with clearance of Goods of Declaration for exports, around 50 percent refunds amount would be paid upfront. The government circles argued that the zero-rating was a viable option when the ratio of exports and domestic sale stood at 80:20 percent respectively but now the situation on ground has changed altogether. There is a lingering controversy between textile sector tycoons and government’s circles over the exact size of exports and share of domestic sale of textile sector. Ministry of Finance and FBR has estimated the share of exports and domestic sale could not be less than 60:40 percent now.

On the other hand the textile industry took stance that the domestic sale could be standing around Rs354 billion maximum. “At a time when the domestic markets are flooded with imported material the estimation of market size of Rs1200 billion is just a joke,” they stated.

On the issue of increasing demand to withdraw condition of CNICs, the FBR has been warned of a shutter-down movement in the aftermath of approval of budget but the tax machinery argued that no one should complain that only manufacturers and formal sector were paying taxes and then no other sector would enter tax system.

The FBR high-ups are taking stance that the revenue collection can go up to Rs4,500 billion in the next budget without enforcement measures, especially the condition of CNICs, and they will stop at much less than the desired target. The FBR has envisaged additional collection of Rs516 billion with the help of different measures after netting Rs4,150 billion in the outgoing fiscal year ending on June 30, 2019.

The remaining additional collection cannot be done without provision of CNIC details of buyers, otherwise the existing taxpayers will continue to remain into tax net and we will not be able to achieve our desired annual target of Rs5,550 billion in next financial year, the officials said.

Senator Mohsin Aziz of the ruling Pakistan Tehreek-e-Insaf (PTI) warned the FBR and finance ministry’s top brass during the senate panel meeting that the board should move ahead in a gradual manner as such abrupt changes could prove disastrous for the businesses and industry.

On this point the FBR high-ups argued that if this provision was withdrawn then the desired target of Rs5,550 billion could not be achieved and the wish of broadening of tax base would remain a dream.

Thirdly the FBR has taken measures to bring offshore assets into tax net in a bid to comply with the FATF requirements.

In the finance bill 2019-20, the government has proposed that the trade-based money laundering through mis-declaration of imports and exports be declared as predicate offense with imprisonment of 10 years and confiscation of goods.

The trade based money laundering is being used to transfer funds abroad and it is very critical to bring these offenses in line with Anti Money Laundering (AML) laws to comply with Financial Action Task Force (FTAF) requirements.

It is relevant to mention here that the plenary meeting of Financial Action Task Force (FATF) has recently asked Pakistan to take urgent action on 10 points till deadline of October 2019 to avoid ending up on the blacklist. Pakistan has so far managed to obtain required support to avert any negative decision at FATF forum.

The FBR has also proposed harsh punishment including imprisonment for ‘trade based money laundering’ through mis-declaration of value for illegal transfer of funds abroad.

Throwing light on the new section 32C in Customs Act through Finance Bill 2019, Shabbar Zaidi, the chairman FBR, said, “The trade-based money laundering’ is a very serious crime, once established, it comes under the ambit of money laundering”. Zaidi added that the mis-declaration of value for illegal transfer of funds abroad had been highly abused in Pakistan. “If the crime has been established, the proposed punishment is up to 10 years imprisonment besides penalty and confiscation of goods,” the FBR chairman said.

If a person has committed the crime of trade-based money laundering then separate complaint would also be filed against the accused under Anti-Money Laundering Act.

With these drastic measures, the government will also have to sell its revenue efforts at a political level along with convincing the masses that their rulers are standing by them at this difficult hour.

The writer is a staff member