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Structural and operational weaknesses of the existing tax system require fundamental reforms :FPCCI

News Desk
March 16, 2021
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KARACHI – A seminar on the present tax regime was organized by FPCCI in collaboration with Policy Research Institute of Market Economy (PRIME) addressed by leading think tanks, business experts, economist, including Dr. Ikramul Haq, Ali Salman CEO (PRIME), Mr. Hanif Lakhani, Mr. Nasir Khan, Mr. Adeel Siddiqui (Vice Presidents FPCCI), Sheikh Sultan Rehman, Engr. M.A. Jabbar (Former Vice Presidents FPCCI), Members Budget Advisory Council of FPCCI and Trade and Industry representatives.

Engr. M.A. Jabbar in his opening remarks said that complications and irritants in the present tax systems need to be made exclusive to for capitalizing the available tax potential in the country. Complexities in the taxation systems keep on increasing with every budgetary exercise possibly due to reduced consultations with stakeholders by FBR. Business sector is substantially overburdened to resolve its tax issues rather engage in economic activities on the basis of tax predictable business environment to contribute in improving socio economic conditions.

Engr. M. A. Jabbar informed the participants that President FPCCI has sent suggestions to Prime Minister in respect of simplified taxation for accelerated growth, which has been positively responded by Prime Minister by giving directions to FBR during the high level meeting on tax reforms held at PM House to focus on tax reforms regime; simplification of tax codes (federal tax laws); reduction in discretionary powers of tax collectors; automation to bring transparency in tax system.

The President FPCCI has also conveyed to PM that Tax administration has become source of developing complicated tax statutes, rules, SROS, Customs, Sales Tax and Income Tax General Orders and engaged in issuance of clarifications and show cause notices round the year to in specific already identified taxpayers in the system.

President FPCCI has also suggested Prime Minister that we need a simple, fair, and predictable tax system: 10% income tax on individuals and AoPs, 20% income tax for companies, 5% sales tax (for exporters 0% tax). Low-rate customs duty (One Chapter, One Rate, 5%) on all items and federal excise duties on luxury items and on health-hazard products like cigarettes, beverages etc with due consideration for protecting the domestic industry competing the imports.

Participating in the seminar, the Vice President FPCCI Mr. Hanif Lakhani raised the question of meeting collection targets in the shrinking growth, which has diverted FBR to over focus on existing registered persons. Mr. Nasir Khan Vice President FPCCI from Balochistan said that businessmen are working to promote economic activities and retiring their all liabilities even in continued COVID waves, despite difficult situations, a sizeable tax has been collected from businesses. VP FPCCI further said that it is unfortunate that FBR in alleging people of Pakistan to be tax evaders instead of appreciating that even in difficult situation people have been paying taxes.

Dr. Ikramul Haq presented a tax reform model and answered various questions on tax related problems raised by the participants of the seminar. He said that he has designed a tax reform model that would bring paradigm shift in the taxation structure in Pakistan. The model will align with incentives required to promote economic growth and induce compliance. He said that rate of tax should be flat, lower with broad tax base. He further added that the taxpayers have to deal with multiple revenue and non-revenue agencies adding in developing non encouraging environment for exploiting the available tax potential in the country.

Dr. Ikramul Haq further informed that presently, all broad-based and buoyant sources of revenue are with the federal government and contribution of provinces in total tax revenues [Rs. 4748 billion] for the fiscal year 2019-20 [11.4% of GDP] was merely 8 percent and in overall national revenue base (tax and non-tax revenue) of Rs. 6272 billion [15% GDP] it was 9 percent against the total national expenditure of Rs. 9648 billion. All provinces together generated taxes of Rs. 414 billion and non-tax revenues of only Rs. 102 billion.

Dr. Ikramul Haq highlighted the issues and gave solutions in respect of complex income tax, distorted and multiple Sales Taxes, Customs and SROs culture, multiple tax collection agencies and inefficient appellate system. He said that Flat-rate Taxation could resolved the issue of complex income taxation, similarly, Single-stage Sales Tax, Single –rate Customs Duty and National Tax Authority and Federal Tax Tribunal under judiciary are suitable options to replace, Multiple Sales Taxes, SRO culture, Multiple Tax Collection Agencies and Inefficient Appellate System, higher import taxes.

Ali Salman CEO (PRIME) participating in the Webinar gave salient features of simplification of taxation structure, in which the Policy Research Institute of Market Economy is actively engaged towards the objective of required paradigm shift in the present taxation structure and pleaded the case for forging the alliance of different like-minded groups to steer the objectives in the interest of achieving deficit free economy of the country.

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