Govt set to reform tax structure for sustainable economic development

ISLAMABAD: The government is all set to reform both tax policy and tax administration to establish a tax structure that generates sufficient revenues to meet needs and promote sustainable economic development of the country.

“The government intends to reform both tax policy and tax administration to bring about a tax structure that generates sufficient revenue to meet government’s needs, reduces the burden of high taxes that distorts economic incentives, restores fairness and equity in taxation, and promotes international competitiveness,” officials said.

According to an official document, some of these goals would require careful balancing acts as the short run losses in revenues by removing some of the distortions, including advance taxes, holding back tax refunds, lowering the burden on manufacturing sector, reducing import tariffs to make exports competitiveness, would only be offset in the medium-term.

In the interim, the immediate revenue requirements to meet primary balance target trajectory would have to be met, it said, adding that “accelerated efforts would have to be made in bringing those outside the tax net to expand the tax base”.

The government has already created a Specialised Tax Unit for foreign assets in the Federal Board of Revenue (FBR) and has taken measures to broaden the tax base, while it was promoting the use of information technology for data mining to detect under-reporting of tax liability by taxpayers.

“The government has come to an understanding with different countries on sharing data on assets of Pakistani nationals in those countries,” the document revealed, adding that the data from the Organization for Economic Co-operation and Development (OECD) has already been received.

This measure would make it very difficult for Pakistani tax-evaders to hide their assets and bank accounts outside the country.

Tax policy and tax administration functions have been separated, according to the document, which added that the Ministry of Finance, which had assumed the responsibility of formulating tax policy, was in the process of strengthening its capacity to play this role.

“As an important step toward this separation, an Independent Tax Policy Board has already been constituted.”

The tax policy would have a medium to long term horizon and would not be changed every year as it created uncertainty for businesses, it added.

From the next fiscal year, the government would initiate a process of formulating a Medium-Term Tax Policy Framework (MTTPF), which would remove government’s

reliance on ad-hoc annual tax measures, thereby instilling greater certainty in the markets about tax policy direction.

According to the document, the practice of withholding payments of tax refunds had deprived exporters of funds that could have been used to expand business activity.

The government had already taken measures to expedite clearance of the present backlog of tax refund arrears through issuing of a negotiable financial instrument.

It said the government was committed to streamline the system of tax refunds to reduce the time-lag in payment of these refunds to avoid build-up of refund arrears.

“Greater use of technology will help detect fraudulent claims and speed up refunds claims for honest taxpayers,” the document said, adding that using techniques prompt issuing of refunds within strict time line.