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Business

April 21, 2017

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Experts call for simple tax system to ensure compliance

Experts call for simple tax system to ensure compliance

LAHORE: Economist Hafeez Pasha on Wednesday called for harmonisation of tax rates across the country to address the grievances related to national finance commission (NFC) awards.  

Pasha said at least 60 to 70 percent of the divisible pool should be allocated to the low income provinces. “The current award is not equitable,” he said, addressing the 2nd consultative session of the NFC award, organised by the Policy Research Institute of Market Economy (PRIME). 

“It is imperative that the horizontal sharing formula of the NFC awards should be updated after the census.”  The ex-finance minister called for further decentralisation of the tax system in addition to create incentives for resources generation as well as allocation.    He proposed that conditional grants should be provided to those working on priority areas of the federation, such as education and health.

Abdul Wajid Rana, ex-finance secretary, said India has now introduced its 14th NFC award, while Pakistan managed to announce only the 7th award since its inception in 1947. Rana said the share of provinces could not be lower than what was determined in the 7th NFC award after the 18th amendment.

Tax expert Ikramul Haq said taxation rights have not fairly been shared between the provinces and the centre.   “Disputes between provinces and the centre arise because provinces are not allowed autonomy to determine tax policy,” said Haq, who authored a book, titled, “Towards Flat, Low Rate, Broad and Predictable Taxes.”  The expert called for a clear demarcation of jurisdiction to avoid conflicts over revenue between the units and the centre. 

He expressed concern over what he said the massive level of double taxation in the system. He called for a major sales tax reform. Businessman Najaf Yawar said the government needs to identify the optimal level of taxation. Yawar, during an interactive session, said provinces should promote low tax rates to attract investment.

Tax expert Zafar Kalanauri said the tax system needs to be extremely simple to encourage compliance as the country has low literacy rate. Saad Khan of the National School of Public Policy said the allocations made in the current NFC award are not inequitable. Khan said Balochistan’s budget increased more than 1,000 times since 1982 – much faster than any other province. Smaller provinces also receive a greater share in national development spending apart from funds from NFC divisible pool.

 

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