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‘The IMF is pushing for PIT, or Corporate Income Tax, to be increased’

ISLAMABAD: Dr. Ashfaque Ahmed, Chairman of the Federal Reserve Board, stated that the IMF was requiring measures to increase personal income tax (PIT), corporate income tax (CIT), remove GST distortions, improve enforcement capabilities, and achieve a long-term revenue collection strategy.

He also stated that while he was not personally in favour of borrowing $400 million from the World Bank (WB) to overhaul the FBR as part of the Pakistan Raises Revenues (PRR) programme, the Ministry of Finance required foreign cash and thus extended assistance.

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“As the country is currently under IMF supervision, adjustments in personal income tax are among the IMF’s requests. Chairman IMF Dr Ashfaque Ahmed remarked at the Pakistan Prosperity Forum 2021, convened by the Policy Research Institute of Market Economy (PRIME), that “we will be bringing soon reforms in Personal Income Tax and correcting distortions in GST.”

The chairman FBR said that the tax machinery used to get rupee components as the Ministry of Finance required foreign exchange to meet its obligations. He said that the rupee component was given through supplementary grants and in the last fiscal year, the FBR was provided Rs2.5 billion in May 2021 when there was not sufficient time left to utilize the resources. The FBR is still resource-starved, he added.

The WB’s IDA loan is cheap but he will not be happy for getting a loan to introduce reforms in the FBR, he added.

He said that the FBR was facing numerous challenges on account of the fragmented fiscal base where the Centre and the provinces possessed divergent jurisdictions under the Constitutional obligations. The collection of Agriculture Income Tax (AIT) and GST on services lies with the provinces. The FBR has offered the provinces to share the data and sought permission to collect the AIT on the behalf of provinces and is still awaiting the response of the federating units.

He outlined various other challenges faced by the FBR, including lack of automation, low compliance rate, data compartmental approach, complicated tax laws, retail rigidities, lack of capability to capture supply chains for taxability, Mis-Invoicing, smuggling, and financial and administrative autonomy for tax administration. He also said that the National Tax Agency was also on the cards, however, the harmonization of taxes was one of the top priorities of the government.

He said that the FBR’s tax-to-GDP ratio stood at 10 percent while the expenditure to GDP ratio was over 20 percent, so there was an increased fiscal stress to collect more revenues to run the affairs of the state.

He said that there were 7.1 million registered tax filers out of which only 3.1 million filed income tax returns and there was still a gap of 4 million return filers. Although, he said, the number of filers increased from 1.4 million in 2015 to 3.1 million in 2021, the tax yield on the basis of per filer had come down that needed to be reversed.

He said that the FBR envisaged a 10-point plan to place Smart Taxation Model under which the focus was on centralized planning and centralized monitoring, bringing automation, revenue resource alignment, jurisdiction re-alignment, restoration of tax administration credibility, crackdown on smuggling, complaint redressal mechanism internally, Regional Taxpayer Offices (RTOs) free of tax target and facilitation.

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He said that the administrative cost of FBR stood at 0.6 percent of total collected revenues out of which 80 percent was utilized for payment of salaries of the workforce. He also said that the FBR’s collection remained flat at Rs3.8 trillion in three years from 2017 to 2019 but it went up to Rs4.734 trillion in 2020-21. In the first four months (July-Oct) period, he said that the FBR collection exceeded its target by Rs235 billion and collected Rs1.842 trillion in the first four months of the current fiscal year.

Answering a query, he said that Pakistan had never breached the OECD confidentiality clauses for the exchange of information. When asked who would be held responsible for achieving flat revenue growth from the tax year 2017 to 2019, he said that he did not want to comment but added that the FBR required an improved system and more oversight to get the desired performance.

Tax experts Huzaima Bukhari and Dr Ikram Ul Haq said on the occasion that the rich did not pay taxes and there was a need to simplify the tax laws. Dr. Ikram Ul Haq, Advocate Supreme Court, and tax expert, said that the PTI-led government continued tinkering with the tax system. He proposed to bring down the tax rates; Income Tax rate should be brought down on average 10 percent, Sales Tax in single digit at 5 to 6 percent and Customs Duty in single digit in order to bring down tax rates and broaden the tax base. He said that the ratio of direct taxes should be increased to 66 percent, while the remaining are indirect taxes, in a bid to shift the tax burden on the affluent class of the society.

He said that there were 107 million broadband subscribers and there was a need to simplify the tax system to bring them into the tax net. He proposed to the government to simplify tax laws, abolish all tax exemptions, and minimize regulations. He said that the cost of tax exemptions stood at Rs2.3 trillion and there was a need to bring fundamental reforms to overhaul the taxation system. He said that there was a need to establish the Pakistan Revenue Authority (PRA).

Vice-Chancellor PIDE and renowned economist Dr Nadeem Ul Haque said on the occasion that the policymakers including politicians, bureaucrats, and donors do not listen and inquired whether anyone representing political elites, bureaucrats, and donors representative was present in the room. No one was found from these segments in the hall.



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