No steps in sight to close collection cracks as govt sets ambitious revenue target

LAHORE: Pakistan Muslim League-Nawaz (PML-N) led government’s all last five budgets envisaged an increase in revenue, which was always higher than the new taxes imposed but somehow or another collectors managed to pull off sizeable growth that was much above taxation.

Experts are still skeptical about achieving next fiscal year’s collection target, which is Rs500 billion higher than previous year, while providing a relief of Rs185 billion on assured taxes, collected in 2017-18. The new taxation measures would yield only Rs93 billion.

This regime has been able to multiply the tax revenue by two in five years and increased the tax to GDP ratio from 8.5 percent of the GDP in 2012-13 to 13.2 percent of the GDP in 2017-18.

This increase was achieved despite the fact that the government was reluctant to challenge most of the influential tax evaders.

Tax compliance in Pakistan has increased a bit but still the informal sector is larger in size than the tax compliant sector.

Even in the tax compliant sector there are huge leakages, which the present regime tried to plug with only partial success.

Tax evasion according to a former Federal Board of Revenue (FBR) chief is very high in sugar, cement, beverages, and cement sectors. This is the reason the 80 percent of the total direct tax collected in Pakistan is paid by only 200 corporate sector companies that include state banks, enterprises and multinational companies.

On the other hand the remaining over 80,000 registered corporate sector companies pay nominal income taxes. A major chunk of the rest of the 20 percent is contributed by the salaried class that perhaps is the only fully tax compliant segment of the economy though by default as their taxes are deducted by the employer from their monthly salaries. We have not seen the names of scores of home appliance companies among major income tax payers. The revenue targets may look higher but the potential for tax collection is much higher even if the so called compliant sectors pay their actual taxes.

The next government should accept the challenge to cross the target given in next year’s budget. One thing that goes in favor of next government is that parking of illegal money is becoming extremely difficult in developed economies.

It would be safer to pay taxes in Pakistan and keep the money within the country instead of risking it being taken over by the alien government.

We lost golden opportunities by continuing to dole out tax exemptions to the influential and lacked the will to institute tax reform. The next government should focus on mobilisation of resources by eliminating exemptions.

A good development this year is that the law about no question asked on foreign remittances has been changed. Now no question would be asked only if the remittances do not exceed $100,000 per year. For foreign remittances exceeding $100,000 the beneficiary would be probed by the FBR.

This will effectively block off dollars brought into the country to whiten the black money particularly by construction sector. It is indeed worth noting that construction tycoons spend billions on charity but do not pay taxes corresponding to the money they dole out for poor.

Legally they are permitted to give 15 percent of their taxable income to designated charity organisations only. They have to deposit the remaining 85 percent as tax.

Tax revenue is achievable if the government in power musters the political will to confront the most influential segments of society.

The next regime, if it dares to tighten noose around the necks of smugglers and under-invoicers, can even double the revenue collection.