KARACHI – ACCA (the “Association of Chartered Certified Accountants”) believes that it is time to make radical changes in the approach towards budget and the economic model of Pakistan.
We are compelled to think beyond twelve months and take medium to long term perspective focusing on inclusive economic growth and development model for Pakistan rather than just managing cash flows and foreign-exchange reserves.
Budget 2019/20 should be based on ‘low-tax-rate’ and ‘broadening-the-tax-base’ philosophy; aiming for GDP growth rate of 7% and improvement in human development index from current level of 0.562 (150 ranking) to 0.800 (<60 ranking) in next 3-5 years.
The policy focus should be more on increasing the size of the documented GDP from ~USD 315 billion (2018) to over USD 1 Trillion, alongside increasing the Tax-to-GDP ratio based on current size of the documented economy.
The key drivers for the aspired economic growth and human development:
- Harnessing the fourth industrial revolution using new technologies to drive future-proof economic growth and participate in global GDP
- Inclusion of local SME/start-ups sector in public spending to the tune of 10% -15%
- Supporting micro and small industries in underdeveloped regions
- Incentivising domestic investor for import substitution
- Encouraging export of services and human resources
- Focusing on public-private partnership to introduce outcome driven citizen service models for education & health sector
- Devising a national human resource development strategy driven by domestic and global demands
- Ensuring transparent and timely reporting of public spending
- Capacity building of government functions
- Rationalizing the size of the government
- Building a political consensus on the charter of economy
In the context of the 18th amendment, Prime Minister Office may need to drive progress through coordination committees with representatives from federal & provincial governments and key experts from industry/academia. To make them effective, the size of each committee should not exceed 10-12 members who should be obliged to provide decisions within stipulated timeframe.
Key highlights of budget proposals by ACCA are:
• The right to use information available with financial sector and revenue collection authorities should be allowed to broaden the tax base.
• Reduce the corporate tax rate to 20% and individual highest slab to 25%.
• Single and simple tax collection system for federal and provincial sales taxes.
• The sales tax rate should be reduced to a single digit in the next 3 years starting with 14% in 2019/20.
• Punitive measures should be introduced making non-compliance by businesses commercially non-viable.
Furthermore, the proposals recommend that the reliance should be on direct taxes including taxation on agriculture sector, inter-corporate dividends should be exempt, evidence of source should be made mandatory for foreign remittances, discretionary power to attach a bank account for recovery should be abolished or revisited, and services should not be subject to minimum tax.
In order to broaden the tax base, increase the involvement of professional accountants to build on-ground infrastructure to facilitate businesses and tax compliances.
ACCA members in Pakistan and abroad are regulated under a single code of ethics and conduct. ACCA believes that the professional accountants in general and ACCA members in particular are there to uphold the public trust and to bring the global best practices to drive the economic growth and development, boost business confidence and propel right behaviours for tax compliance.