‘Get rid of stopgap tax measures to pull in revenue’

KARACHI: Pakistan Business Council (PBC) on Thursday advised the government to do away with makeshift tax policies in the upcoming budget to lure back investments and refocus manufacturing sector that is relatively more integrated into the formal economy.

PBC said increasing taxes on the already-taxed sectors couldn’t help the government in implementing its socioeconomic agenda.

“Taxation base needs to be widened through better documentation by bringing the under-taxed and the currently exempted sectors into the tax net,” it said in a budget proposals document. “The current tax policies are leading to a reduction in investable surpluses for the corporate sector. The short-term revenue enhancement measures pursued by the FBR (Federal Board of Revenue) in the recent past have acted as a disincentive to not only re-investments by existing units but have also acted as a deterrent to fresh investments in industry and the formal sector.”

The business policy advocacy group said the economy is reeling under the Covid-19 impacts and doesn’t have the fiscal space to provide major incentives in the next budget. However, the government can reorient its policy actions to achieve inclusive and sustainable economic growth.

The council said the incoming finance bill 2020 should be in favour of the manufacturing sector as a recovery in the sector would have a multiplier effects on the economy. Manufacturing jobs are primarily in the formal sector as opposed to the services sector.

The PBC said its budget proposals aim at to mitigate sufferings of the people and business which sustains jobs and livelihoods. It hoped that Pakistan’s economy would be able to make a quick recovery in the post-COVID-19 world. “The pace of recovery will be dependent on restarting the economy, especially the manufacturing and services sectors to create jobs, value-added exports and import substitution.”

The PBC said the budget needs to create an atmosphere which promotes investments in the manufacturing and services sector, job creation, value-added exports, economic documentation and revenue enhancement.

“Laws on group taxation and group relief and the alternate corporate tax need to be addressed to create an investor friendly environment in the country,” it said. “The arbitrary and non-transparent implementation of tax laws by FBR functionaries in their zeal to achieve unrealistic revenue targets is severely impacting the viability of the formal sector.” The council said the continued failure of the FBR to use data-mining to identify those who are either not paying or underpaying their dues is also an area of concern for the formal sector.

PBC said there is blatant misuse of the Afghan transit trade and wholesale and retail markets all over Pakistan are flooded with smuggled products. “Despite having the jurisdiction to act against the open sale of smuggled products, the FBR continues to hide behind such flimsy excuses like lack of support from local administration.”

The Afghan transit trade needs to be better monitored and one measure could be the collection of all dues which are payable by importers in Pakistan and refunding the same once the shipment conclusively enters Afghanistan.

The PBC said revenue leakages in the customs department need to be plugged, while electronic data interchange with China needs to be fully implemented.