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Dr. Ikramul Haq
The pathetic performance of Federal Board of Revenue (FBR) in achieving even downward revised budgets for the last many years has adversely affected the fiscal scene—on the one hand federal government is in deep debt trap, fiscal deficit plus debt servicing are becoming unmanageable and on the other provinces—heavily dependent on share/transfers under National Finance Commission (NFC) Award—are getting less than budgeted amounts. Provinces have also failed miserable to collect taxes from the rich. Additionally, the current (mostly wasteful) expenditures are monstrously high of all governments.
As usual on December 23, 2019, the original target of FBR of Rs. 5503 billion for fiscal year 2019-20 was revised downward to Rs. 5238 billion. According to a report [IMF cuts FBR’s tax target to Rs. 5.238 trillion, The Express Tribune, December 23, 2019]:
“The International Monetary Fund (IMF) has projected significant fiscal slippages and has finally cut the tax collection target to Rs5.238 trillion, which raises questions over claims of bringing fiscal discipline and restoring macroeconomic stability…Pakistan’s budget deficit will slip from the projected 7.3% of GDP or Rs3.2 trillion to Rs3.4 trillion or 7.6% of GDP, according to the IMF”.
Shockingly, both the IMF and FBR ignored the proposals presented in ‘Raising Rs. 8 trillion’, Daily Times, November 12, 2017 enabling Pakistan to overcome monstrous fiscal deficit, get rid of fresh loans, achieve rapid economic growth and provide social services to all citizens. The IMF in its first review [Country Report No. 19/380] has admitted that “more than 40 percent of total tax revenue in Pakistan is collected at the import stage”. The fact of oppressive and narrow-based taxation was highlighted repeatedly in these columns and viable solutions were offered to make it fair and broad-based, but FBR and IMF paid no heed. It was suggested among others:
• All individuals having taxable income or below taxable limit should be facilitated to file simple tax returns [no wealth statement]. Income tax rate should be lowered to maximum 10% and those earning below taxable limit should be paid income support [negative tax]. Return form should be in English/Urdu/all regional languages. Reporting of real income by all will help create data bank at national level of all households. Their earning levels will determine who need to pay and who should be entitled to social benefits under Benazir Income Support Programme, Ehsaas etc and how to improve social/economic mobility ending poverty trap.
• All entities—individuals, association of persons/firms/companies/any other artificial juridical persons—should be offered to pay income tax/sales tax for any tax/assessment year/tax period for any past lapse under National Tax Clemency Scheme. They should be encouraged and facilitated to pay past liabilities and thereafter would not face any penal action—prosecution, penalties, additional tax, default surcharge etc.
• The State must end the culture of appeasement—no more amnesties and immunities giving incentives to the dishonest and penalising the honest who have been paying taxes diligently at normal rates. Those who filed but underpaid be offered to make up deficiency paying due tax with no penal action/audit. It would bring in much-needed revenues—even exceeding the revised target fixed for FBR at Rs 5.2 trillion.
• For reducing fiscal deficit to the level of 4% of GDP this year, it is imperative to (i) curtail unproductive and wasteful expenses by 30%, (ii) increase non-tax revenues by leasing out valuable state lands and assets e.g. GORs and palatial government houses etc through public auction and for specific activities to generate employment and boost economic activity and (iii) taxes at all levels—federal, provincial and local—should be made simple, low rate, broad-based, payable with ease.
• In the next three years’ time, the businessmen instead of being overburdened with advance/heavy taxes/duties/other charges should be facilitated by improving all indexes of ‘Ease of Doing Business’ that must also include reducing cost of doing business. They should be given tax credits/incentives for compulsorily investing in human resource so we have trained and qualified workforce in all areas—providing employment to all and paying them as ordained in Article 3 of the Constitution. We must encourage and offer all possible facilities and incentives to all kinds of entrepreneurs, especially Small & Medium Enterprises (SMEs) to concentrate on growth and productivity.
•All the governments—federal, provincial and local—should join hands and prepare national level data of all citizens determining their economic and social status. There should be universal pension, social security and food stamps for the needy at the same time empowering them to come out of poverty entrap.
•In three years, after achieving consensus through consultation with all stakeholders we should have National Tax Agency manned by members of All Pakistan Unified Tax Services having the professional expertise in all related fields. This Agency would be in a position to communicate to all citizens what their income/expenditure levels are—it will determine tax obligations as well as who needs income and social support from the State.
• After national debate and taking input from all stakeholders national and provincial legislators should go for simple, predictable and low rate taxes—there should be income tax on all incomes including agricultural income to be under the exclusive domain of federal government and single harmonised sales tax on goods and services to be given exclusively to the provinces on the basis of goods produced and supplied and services rendered or performed within their territories—it will create fiscal consolidation and make federal and provincial governments self-reliant.
• We must abolish multiple taxes and collect local taxes e.g. property, vehicle taxes etc to meet the needs of local residents by allocating funds to local governments to provide services of health, education, civic amenities of all kinds, and recreation etc.
• All citizens and other entities should be given a chance to declare all untaxed assets for any past year, at home or abroad, by paying due tax liability in full or in installments to overcome cash liquidity problems—of course paying additional tax for grace period(s). After the deadline, stringent action under the law should be taken including confiscation of property, fine and/or imprisonment.
If we fail to undertake fundamental reforms as suggested above, there is a remote possibility of collecting taxes of even Rs. 6 trillion at federal level and Rs. 4 trillion at provincial levels in the next few years to give enough fiscal space both to the federal government and federating units to come out of the present mess and providing much-needed and long-delayed benefits/entitlements under Universal Human Rights Declaration to all citizens and reliefs to trade and industry. It needs to be reminded once again that focus should be on rapid growth that will increase taxes as a byproduct—harsh taxation only hampers expansion and prevents investment in existing and new businesses. Will Abdul Hafeez Shaikh and Shabbar Zaidi care to take corrective measures? Let us pray 2020 brings prosperity for Pakistan and equal opportunities and universal entitlements for all citizens as guaranteed in the Constitution.
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The writer, Advocate Supreme Court, is adjunct faculty at Lahore University of Management Sciences (LUMS).