Rs65bn can be generated through agri income tax: report

ISLAMABAD: Pakistan can generate Rs65 billion through the Agriculture Income Tax (AIT) if similar tax rates applicable to other sectors are applied to bring this income under the tax net. This was revealed in a report launched by Fredrich Ebert Stiftung on Tuesday.

The estimates incorporated into the FES report were based on estimates from the 2010 data. Under the IMF conditions, the provinces are making legislation and, so far, Punjab’s Assembly has approved the AIT legislation without incorporating exact rates. It is claimed the rates will be notified through rules.

Other provinces, including, KP, Sindh and Balochistan, will have to get approval on AIT legislation from their respective provincial assemblies. Identifying the tax compliance gap of Rs1.2 trillion from the corporate sector, the report says five major sectors contribute to the whopping tax gap, such as tobacco, tea, real estate, automobiles and pharmaceuticals.

The Fredrich Ebert Stiftung (FES) and Public Services International (PSI) conducted a Roundtable on the National Tax Policy of Pakistan, which was chaired by Chairman of the Senate Standing Committee on Finance and Revenue Senator Saleem Mandviwalla.

He said it was a collective failure of dictatorial and democratically elected to remove distortions in the taxation regime. It was ironic that the salaried class was paying more taxes than retailers. The same goes for the real estate, as it is the largest sector in the country, but they are not paying up to the mark. He said that he was not clear how much tax rates could be reduced once the country was under the IMF programme. “There is a need for political will to remove distortions in the existing taxation regime,” he added.

Former senator Farhatullah Babar said all kinds of tax exemptions enjoyed by the military and civilian elites need to be abolished to bring a sense of equity to the tax system. “Such tax exemptions were available to a few, but it possessed immense importance to convey a loud and clear message that all were treated equally in the country and there were no exceptions for anyone,” he said. Now, the time has come to look inwardly, he added.

The Asia Pacific Regional Secretary, PSI, Kate Lappin, said there were concerns about privatisation. This discussion on fair and equitable taxation regime was organised at a time when G20 was all set to consider slapping 2pc on wealthy billionaires. The report says Corporate Tax evasion is another significant cause of concern. Evidence suggests major sectors in the country, such as tobacco, tea, real estate, automobile (tyres and lubricants) and pharmaceuticals evade taxes, resulting in losses of nearly Rs310 billion as of 2021. The case of tax evasion by the tobacco industry has been a great cause of concern among various experts and analysts in Pakistan. The country saw a tax gap of Rs1,961 billion in direct taxes. The largest contributor to this gap was the corporate sector, while Rs2,833 billion was owed in Corporate Income Tax. Only Rs1,655 billion was collected, leading to a tax gap of Rs1,178 billion (41pc). The report says, “Undoubtedly taxation in South Asia is largely regressive and violates basics of tax justice on many fronts. In Pakistan, contribution of GST stood at 3.4pc of GDP, while contribution of Corporate Income Tax, Profits and Gains was ranging around 4.4pc of GDP.”