SDPI budget proposals 2018-19: Govt urged to pursue simplification of tariff regime

Govt urged to reduce burden of indirect taxes on farm inputs

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ISLAMABAD: As the government has decided to announce the budget on April 27, it has been urged to simplify tariff regimes and reduce the burden of indirect taxes especially on farm inputs.

In a budget proposal submitted to the Ministry of Finance, Sustainable Development Policy Institute (SDPI) has suggested the government to engage the local business community to develop inclusive economic agendas that strengthen fair competition, level playing field and promote efficiency that can also help the interests of consumers.

For promotion of agriculture sector development, SDPI says provincial annual development programmes need to increase budgetary allocations for improving irrigation, farmer’s access to markets and water. Besides, the Ministry of National Food Security and Research in consultation with the provinces needs to formulate a strategy for development of value chains and agro-based industries. All forms of agricultural subsidies should target only the micro and small farmers and there is a need to reduce burden of indirect taxes on farm inputs and removal of trade barriers and allow zero-rating of agriculture machinery and inputs.

As per the budget proposals, it has also been proposed that improvements in inter-ministerial and inter-governmental coordination for timely implementation of policy measures and fiscal incentive packages announced to promote competitiveness was much needed. The federal-provincial coordination mechanism was also needed to harmonize the regulatory regime for exports. Besides, SDPI suggests government to  improve Pakistan’s logistics performance particularly in the areas of customs clearance process, transport, warehousing, ability to track and trace consignments.

It also says Pakistan may pursue simplification of tariff regime where a three-slab structure may be retained. Regulatory duties should be gradually abolished. In the medium-term, a move toward a uniform tariff regime is recommended. Reduce regressive withholding taxes, compliance and reporting costs under direct and indirect taxes, and broaden the corporate tax base to reduce burden on manufacturing sector VI. Stronger measures are needed for crackdown on harassment faced by businesses at the hands of tax and regulatory authorities including environment, labour, food and municipal administration departments.

As budgetary measures to promote investment, the organziation proposes to improve     coordination for investment diplomacy across various economic ministries/departments at the federal and provincial levels, remove unfair exemptions and concessions allowed to select sectors in the tax code. A sectoral regulatory impact assessment can highlight the key barriers to investment and along term outreach programme is required to inform the private sector regarding possible opportunities arising as a result of timely completion of China Pakistan Economic Corridor (CPEC) programme.

For efficiency and competition in energy sector, SDPI suggests, stronger policy stance to end hidden and cross-subsidies in the oil, power and gas sectors. It says there is need to expedite reforms to improved electricity transmission and distribution and introduce fiscal measures for promotion of clean energy.

The unbundling of gas distribution companies should result in optimization of the company overheads, and put in place mechanisms to curb technical losses and theft. In the longer run it is important to change the energy mix and bring about efficiency measures in generation and distribution companies so that cost of energy faced by the industrial user come down.

For social enterprise development, it has been suggested that Planning Commission and provincial Planning and Development Departments may support social enterprise development through provincial growth strategies already under implementation. Federal Board of Revenue will have to devise a tax system for social enterprises that values social impact . SBP will need to assess why formal finance is not reaching the social enterprises . The federal and provincial governments can encourage social enterprises through preferred treatment under public procurement of goods and services.

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