ACCA advises single-digit rates to broaden tax base

KARACHI: Association of Chartered Certified Accountants (ACCA) Pakistan on Monday suggested the government to reduce tax rates to single digits and increase impetus on direct taxation to broaden the existing tax base.

In its proposals for the budget 2018-19, the ACCA also stressed on utilisation of National Database & Registration Authority NADRA data and withholding tax data and formalised asset valuations for the purpose.

The accountants’ body said it has identified that the taxation system in Pakistan was in need of a serious overhaul. “At present, the confidence of the taxpayers and general public in the tax authorities is much less than desired.

The result is a mushrooming black economy, under-declaration and tax evasion leading to losses of billions for the exchequer,” the ACCA said in its policy paper. The ACCA said important tax policy considerations include broadening the tax base as the existing small taxpayer base for direct taxation can only bear the constantly increasing burden of taxation to a limited extent with serious ramifications for business competitiveness.

In addition to these the structural reforms, the ACCA suggested a single tax return for all taxation affairs of a taxpayer which all authorities can utilise to obtain the relevant data in addition to harmonization of ‘federal-provincial’ taxation laws in the country as well as integration of Federal and Provincial Revenue Authorities’ systems.

The ACCA in its proposals also highlighted that Pakistan’s tax-to-GDP ratio was one of the lowest in the region; however, the corporate tax rate was very high at 30 percent; therefore the tax authorities need to bring it down.

“The existing rate of sales tax at 17 percent is one of the highest in the region with an average of around 12 percent in Asia (15 percent in India and Bangladesh, 10 percent in Indonesia and just 6 percent in Malaysia); therefore it should also be reduced and used to broaden the tax base and not as a replacement of direct taxation,” the ACCA advised.

The chartered accountants association also said it was time Pakistan addressed some vital questions about how the latest technological advancements including Artificial Intelligence (AI), Machine Learning, Big Data and Cryptocurrency requiring proper policies and inclusion can affect the scope of taxation.

Maggie McGhee, director of Professional Insights at ACCA said the global accountancy profession had an important role to play in enabling stable economies and secure societies where consumers were not exploited.

“ACCA supports a close relationship between regulators and the accountancy profession to ensure that a robust regulatory approach is crafted, and refined as developments emerge, so that it is fit-for-purpose in a digital age,” McGhee said.

She added that with Pakistan’s ever increasing debt problem, lack of foreign investments, huge un-mined reserves of natural resources, the advent of CPEC and low value of national currency, a national crypto-currency may offer substantial benefits.

Sajjeed Aslam, Head of ACCA Pakistan said tax administrations should grasp the opportunities which digitalisation of process can offer to them, but must recognise the varying capacity of taxpayers when developing taxpayer facing elements of the compliance process.

The document included inputs from ACCA’s taxation subcommittee members comprising Omer Zaheer Meer, chairman ACCA Pakistan Taxation Subcommittee, Abdul Wahab, Bilal Zafar, Junaid Abbas, Mirza Fasihuddin Baig, Munir Malik, and Yawar Muhammad.