Five-Year Performance: Previous govt failed to fulfill promise of tax reforms

ISLAMABAD: The previous government has failed to bring its much ‘promised’ reforms in the taxation system of the country during its tenure in the last five years.
Information available with Pakistan Today revealed that the Federal Board of Revenue (FBR) under the supervision of the previous government – to some extent – succeeded to increase the number of tax filers from 0.8 million to 1.4 million, but on the other hand, the government failed to enhance the efficiency of the tax machinery; simplify the tax procedures, rationalise tax rates and exemptions, encourage corporatisation, and document and eradicate maladministration and corruption in the FBR during the aforementioned period.
The government, in its election manifesto had promised to increase the tax-to-GDP ratio from 9 per cent to 15 per cent till 2018 but the figures show that the FBR could only reach 12.4 per cent of the tax-to-GDP ratio, which is 2.6 per cent lower than the promised ratio, and also lower than the 13 per cent ratio recorded under PLMN’s second tenure.
Although the previous government took the tax revenue from Rs1,900 billion to Rs3,941 billion in five years, the tax department could not move towards the direct taxation system. The figures are the same as they were in 2013 as the tax department has been collecting 38.5 per cent revenue through direct taxes and 61 per cent through indirect taxes.
Senator Ishaq Dar had stated during the budget speech in 2013 that the broad themes of our government’s taxation policy are taxing those who are not paying any tax, enhancing efficiency of the tax machinery, removing anomalies and distortions in the tax system, simplifying the tax procedures, broadening of the tax base, rationalization of tax rates and exemptions, encouraging corporatization and documentation, taxpayers facilitation and to eradicate maladministration and corruption in FBR.
The tax department has introduced the differential system for the taxpayer and non-tax payer during the last five years such as an additional amount of sales tax of 5 per cent had been imposed through electricity and gas bills of those having commercial or industrial connections, 0.4 per cent on banking transaction and imposition of tax on the real-estate sector.
In addition to this, the previous government to some extent succeeded to broaden the return filers from 0.8 million to 1.4 million. It was revealed that it still a small percentage but needs more effort because approximately 13.8 million are paying taxes but not the filers. Most of the return filers are salaried class people, the officials said that the government should make efforts to bring the affluent class to the tax net.
Further, the outgoing government claims that it has ended the tax exemption of Rs300 billion in the last five years but on the other hand, it has given further zero-rated taxation to the textile sector. The CREST system of the FBR has failed to detect and recover billions of rupees from the textile sector.
The government, in its budget speech 2013 stated that it will end the corruption in the FBR but the documents reveal that the government has failed to end corruption in the tax department. Presently, more than 300 officials of tax department are facing inquiries in corruption cases. The field officers of Customs has lodged a corruption complaint against the incumbent DG customs but high ups are doing nothing, the officials on the condition of anonymity told that government should establish an integrity cell in the FBR which monitors the officers with a circuit system.
The government had announced four schemes in its 5-year tenure to increase the revenue as well as the tax base and officials stated that the schemes were announced to give particulars to persons.
An amnesty scheme was given to those investing in selected industries after asking their sources of investment – but not from any criminal liability – made until 2015. Small-traders were offered a registration scheme in 2015 where their initial capital was exempted from disclosure of sources. The scheme was an utter failure despite claims of traders that at least a million traders would be registered.
The third one was to improve valuations in the real-estate sector and a scheme was offered that would have valued properties on FBR determined values and would have attracted rates at 10 per cent, 7.5 per cent and 5 per cent for holding period of up to one year, two years and three years respectively, and none for longer period. This has also not succeeded in eliciting significant declarations.
The fourth one is pertaining to declaration of domestic as well as foreign assets schemes, sources told that no Pakistani living abroad has contacted to tax authorities, on the other hand, a few dozen Pakistani have whitened billions of rupees by giving just Rs350 million tax.
The previous government had estimated to bring back 4 to 5 billdollarsllar through this amnesty scheme.
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Shahzad Paracha
The writer is a member of Pakistan Today's Islamabad bureau. He can be reached at [email protected]
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