Pandemic: A pretext to roll back economic documentation

LAHORE: Will the Covid-19 become an excuse to roll back whatever reforms Shabbar Zaidi introduced for documenting the economy? Vested interests are all out to undo reforms brought by former FBR chairman to bring transparency in the economy.

Though nothing has yet been said officially, but daily we see media reports indicating that the government might reintroduce zero-rating for five export sectors by this government.

Then the demand for abolishing the condition of CNIC on purchases of above Rs50,000 is gaining ground. The government has also gone soft on its implementation.

Now recently there was a report that the planners are considering to revisit taxation on dairy sector. None of these reports have been denied by the government.

Global depression caused by pandemic has hit Pakistan’s beleaguered economy badly. Apart from the general public, the businesses are seeking government help to resume their operations.

This is understandable and the state has done more for trade and industry than the general public. They have been offered soft loans, and the policy rate has been eased by 4.5 percent.

Inflation has been tamed and is going further down at higher pace than projections. Most of all, their refund claims have been mostly entertained more speedily than ever adding billions of rupees in their coffers.

Government has reduced prices of petroleum products heftily. The power and gas rates are charged from exporting sectors at regionally competitive rates.

The planners have given indication that the power rates would also be reduced. Such liberal facilitations had never been offered to the businesses in one go.

But the covid-19 does not mean that some transparent taxation measures introduced in the past should be rolled back. In fact, we have seen the relief efforts during pandemic restricted by the non-availability of workers’ data that can only be possible through proper documentation and transparency.

The zero-rating issue is mostly decried by the documented sector on flimsy grounds. When five exporting sectors were zero-rated; the sales tax collection from local sales made by these sectors was nominal around Rs7-8 billion.

This was pathetic, as the local sales of only the ladies’ fabric (lawn) were over Rs500 billion. At 5 percent sales tax at retail level the collection should have been Rs25 billion.

Then there are other textile products like children’s garments, men’s wear, towels, bed sheets and so on that have market of another Rs500 billion.

When the zero-rating was abolished and all exporting sectors were asked to buy inputs after paying sales tax. They could ask for sales tax refunds as exports in principle are zero-rated.

This practice ensured that refunds would be available on actual sales for inputs purchased from registered sales tax suppliers. The exporters concern was that the sales tax refunds were inordinately delayed.

Former FBR chairman incorporated automated software in the system whereby the refunds were made immediately after receipt of export proceeds. In the beginning there were some hiccups that were finally removed.

The refunds that exports got for most recent export realisation were because the system has started functioning properly. This means that the government brought many tax evaders into the tax net.

It was because of measures like this that the tax collection increased by 17 percent in pre-pandemic seven months’ despite declining economic growth. It would be unfair to reintroduce zero-rating scheme for the five exporting sectors.

The condition of CNIC was imposed in last year’s budget, but was not implemented till December this year. After that it was mandatory to provide CNIC number of the buyer for all sales of over Rs50,000. Some sectors complied with this condition and some avoided it. The FBR was to prosecute the violators. Now there is again a demand from all business circles to abolish this condition. This is probably because it could document many tax evaders living a luxurious life.

We are promoting the packed milk sector of dairy industry that buys milk from the local farmers at Rs50-60 per litre (the milk has to pass the quality tests of the buyers).

This milk after processing is sold at Rs120-135 per litre. One fails to understand the logic behind this high price.

The processors in the name of homogenising the milk, extract the additional fat that they sell as butter of desi ghee.

These processors do not want to be taxed reasoning that it will increase the retail price and make the price out of reach of the consumers.

They are buying pure milk and selling the same as pure how can they charge more than double their purchase price and deny government even five percent sales tax to fully document their production?