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Huzaima Bukhari & Dr. Ikramul Haq
The World Bank in an appraisal paper related to Pakistan Raises Revenue (PRR) Project has termed “vested interests lobbying for tax exemptions, internal tensions and wariness of change among the Federal Board of Revenue (FBR) staff, and potential disputes affecting provinces’ readiness to collaborate with the FBR as high-risk factors” for tax reforms.
We have done extensive work on the issue of tax exemptions, amnesties, immunities, tax waivers and asset whitening schemes and their impact on tax collections and economy as well as how these benefit the rich and mighty and made the poor and middle class to bear the real incidence of the taxes. We also highlighted the gross constitutional and legal violations committed by successive governments, military and civilian alike in extending extraordinary exemption on behalf of various lobbies, representing the rich and mighty. Our detail work can be seen at:
http://dunya.com.pk/index.php/columnist/doctor-ikram-ul-haq/114
It looks imperative to quote some parts from Political economy of tax exclusions:
“The tax codes of Pakistan at the federal level—Sales Tax Act, 1990, Income Tax Ordinance, 2001, Customs Act, 1969 and Federal Excise Act, 2005—contain numerous exemptions and concessions, majority of these were added, modified or withdrawn through executive orders, called statutory regulatory orders (SROs), without the consent of Parliament in utter violation of Article 77 of the Constitution of Pakistan. In 2015, the International Monetary Fund (IMF) seriously questioned the abuse of SROs for the benefit of the privileged classes. The power to issue an SRO, as an eyewash, was made subject to approval of Cabinet in “extraordinary circumstances” through Finance Act, 2015. In reality, tax concessions/exemptions available to the elites—militro-judicial-civil complex, businessmen-turned politicians and absentee landlords—continue unabated.
The exemptions/concessions available under Sales Tax Act, 1990 facilitate illegal enrichment and making the rich the richer. These are abused by the unscrupulous businessmen with the connivance of taxmen and their advisers to get benefit of even taxable supplies by misdeclartions at import and supply stages. Even where correctly collected and paid to government, sales tax takes large portion of meagre incomes of the poor and very small slice of the rich—widening the existing deep divide between them.
The exemptions under the Income Tax Ordinance, 2001, especially for the powerful segments, cause huge loss to national exchequer—tax-free perks and benefits of public offices and high-ranking civil-military officials and public officeholders are funded by taxpayers’ money. The Finance Supplementary (Amendment) Act, 2018, recently passed by Parliament, withdrew tax free perks of Governors and Ministers but did not touch the same available to mighty generals, judges and civil bureaucrats. State must tax all perks and utilize collection for providing facilities of free education, health, housing and transport to the public at large. Billions forgone as tax exemptions and concessions could have significantly reduced Pakistan’s debt and fiscal deficit—the twin maladies it is suffering since long.
Since 1991, income taxation in Pakistan is largely converted into indirect taxation to benefit the rich—this was done by Nawaz Sharif and thereafter all regimes including that of General Pervez Musharraf retained it in the Income Tax Ordinance, 2001. The presumptive tax, in reality, is indirect tax. For example, a contractor pays fixed rate of income tax on gross value of contract—the burden falls of the contractee who withholds the income tax and deposits with Federal Board of Revenue (FBR). On the same amount, sales tax is paid to province where activity takes place. Thus, the contractee ends up paying 20-25% tax on gross value!
The powerful civil-military bureaucracy and political elite received Rs. 600 billion in the fiscal year 2017-18 as perks and perquisites alone. Not only this, these powerful segments did not pay a single penny as tax on benefits received free or at concessional rates, in utter violation of section 13(11) of the Income Tax Ordinance, 2001.
Besides tax-free benefits to the ruling elites, many tax amnesties/concessions/waivers have been extended to the rich businessmen. The government of Pakistan Muslim League (Nawaz), on assumption of power for the third time in June 2013, instead of taking steps against tax evaders and wealth plunderers, gave them four amnesties in five years and many other concessions/waivers. Ishaq Dar, now a fugitive, proudly announced in September 2013 that “all demands of traders relating to tax matters have been accepted”. These demands were related to condoning of tax evasions. Then Prime Minister (later disqualified and now facing cases in Accountability Court) personally announced tax amnesties for the non-filers—those who deliberately did not file tax returns. An unprecedented amnesty was given requiring them just to pay Rs. 20,000 for a tax year and “no questions will be asked and no audit is to be conducted”. This generous amnesty (expired on April 30, 2014) received extremely cold response—only 3395 persons availed paying a paltry sum of Rs. 87.7 million! Thereafter, the Nawaz-Dar duo gave two more tax amnesties to criminals for whitening their untaxed assets by just paying 3% of value of assets! Then came fifth one from Shahid Khaqan Abbasi that also failed as meagre amounts received on undisclosed assets stashed abroad as well as concealed inside the country.
The position under the customs is equally appalling where approximately 2,000 tariff lines (representing 50 per cent of the SROs) are liable for import duties of less than 5.1 per cent, with almost 900 of them zero-rated! This is how tax laws have become a mockery of rule of law in Pakistan. The Chairman of FBR way back in 2014 admitted that “the government is facing a massive revenue shortfall as two third imports are duty free. It is a matter of grave concern for the FBR that the dutiable imports have dwindled in a major way during the current fiscal year.” During a hearing before the Senate Standing Committee on Finance on May 13, 2014, the same Chairman revealed that “cost of tax exemptions granted over the years to the affluent was Rs. 480 billion per annum”. He was asked to explain “why FBR keeps on issuing SROs due to which customs duty, excise, sales tax and even income tax at source is not being collected and who are the beneficiaries?”. He replied: “all of these exemptions cannot be withdrawn, as some are socially sensitive while others are protected under the Constitution”. He defended exemptions of Rs. 320 billion that included income tax waiver given to independent power projects (IPPs) which he claimed was “protected through agreements and could not be withdraw”.
The Chairman FBR, who later got rewarded by the rich to become Governor State Bank of Pakistan, was untruthful on all the points. First of all, no exemption could be granted through any SRO as held by the Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak). As regards exemption granted to IPPs, it can also be withdrawn as held by the Lahore High Court in AES Pak Gen (Pvt) Company Lahore v Income Tax Tribunal Lahore (2006) 93 TAX 159 (H.C Lah.) and endorsed by the Supreme Court in Uch Power (Pvt) Ltd and others v Income Tax Appellate Tribunal and others 2010 SCMR 1236.
The tax exemptions/concessions/waivers in Pakistan are for the rich and mighty and not for the less-privileged to be “socially sensitive” as claimed by Chairman FBR in 2014 and practice continues till today. Till 1977, before Ziaul Haq’s coup, Pakistan had progressive rates of income taxes, capital transfer taxes, and wealth tax for redistributive justice. Since then there has been a continuous shift from equitable taxes to inequitable ones by granting extraordinary concessions and exemptions to the mighty segments of society.
It appears that due to inadvertent overlook or due to well-though for decision to ignore work of local writers, the World Bank experts (sic) did not read and/or quoted our work or if read intentionally or unintentionally omitted to refer to it! This not confined to World Bank (WB) as studies of International Monetary Fund (IMF), Asian Development Bank (ADB), Department of International Development (DFID) and many others take ideas from local writers but do not acknowledge their work—it raises question of propriety and intellectual honesty.
It may be mentioned that the total cost of Pakistan Raises Revenue (PRR) Project is estimated at US $1.6 billion, of which counterpart contribution is $1.2 billion and IDA financing is $400 million. In the past as well, WB, DFID, and others gave a lot of money to Pakistan for reforms, yet things have changed only for the worse on fiscal/tax front. Pakistan Raises Revenue (PRR) Project is designed to “sustainably increase domestic revenue by broadening the tax base and making it easier for citizens and businesses to pay their taxes. This will make it possible for Pakistan to finance the investments in infrastructure, education and health needed for the country to accelerate and sustain growth”.
The lion’s share of huge funding will go in the pockets of so-called foreign experts who have no idea of our mundane realities and rest will be wasted by untrained workforce we have in all tax agencies at federal and provincial levels.
There is yet no research-based study available with World Bank for improving tax administrations at all levels and growth-oriented tax reform agenda. The World Bank in Pakistan Revenue Mobilisation Project has not shown any indication of taxing the rich though noted as under:
Pakistan’s tax revenue potential would reach 26 percent of GDP, if tax compliance were to be raised to 75 percent, which is a realistic level of compliance for LMICs. This means that the country’s tax authorities are currently capturing only half of this revenue potential, i.e. the gap between actual and potential receipts is 50 percent. The size of the tax gap varies by tax instrument and by sector. The tax gap in the services sector is larger than in the manufacturing sector (67 percent vs. 46 percent respectively) and it is larger for the GST/GSTS than for income tax (65 percent vs. 57 percent respectively).
Our studies have been intentionally ignored and preference is given to foreign experts (sic) who borrowed many of our ideas, e.g. single national tax agency and harmonised sales tax on goods and service etc, without acknowledging that is height of intellectual dishonesty! The following are some of our studies/articles—a few articles coauthored with Dr. Muhammad Babar Chohan, Additional Commissioner, FBR, holding PhD in Economic Planning from Massey University, New Zealand:
Towards Flat, Low-rate, Broad and Predictable Taxes [PRIME Institute, Islamabad, November 2020], Essential reforms, Business Recorder, March 29, 2019, Challenges for budget-makers, Business Recorder, March 22, 2019, Optimising tax collection, Business Recorder, March 15, 2019, Fixing the ailing tax system, Business Recorder, March 1, 2019, Country needs massive reforms, Business Recorder, January 25, 2019, Time up for fiscal integration, Business Recorder, December 21 & 23, 2018, Tax policy for investment, Business Recorder, December 14, 2018, Productive tax reforms , Business Recorder, October 27, 2018, Overcoming fragmented tax system, Business Recorder, October 19, 2018, PTI & revival of economy, Business Recorder, October 12, 2018, Bridging the tax gap, Business Recorder, October 5 & 7, 2018, Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018, Overcoming debt burden, Business Recorder, August 27, 2018 and PTI and tax reforms, Business Recorder, August 17, 2018.
The PTI Government instead of considering and opening for critical public debates our studies and suggestions and many others presented by local experts, improving capacity to detect tax evaders through a Tax Intelligence System, decided to impose more tax obligations on withholding agents. Everyone knows that fault lies with the people who are implementing laws as collection of nearly coming through withholding taxes of tax collected at import stage or deposited as advance tax or paid voluntarily with returns. The own effort of tax collectors by detecting tax evaders and avoiders, raising demand through audit or normal assessment of risk cases and collection is less than 10%. If we want to improve tax compliance, pragmatic reforms are the need in all areas and at all levels. Successful models of various countries should be studied, debated and adapted after making necessary changes to suit our peculiar conditions.
The World Bank in its appraisal report re Pakistan Raises Revenue (PRR) has made the following notable observations/suggestions/conclusions as per a Press report:
- The overall risk-rating of the project is high.
- Macroeconomic risk is substantial and FBR may resort to unorthodox collection practices e.g. demands for advance tax payments, in case of deterioration in the macro-fiscal situation.
- Potential increases in tax expenditure would erode the tax base and could cancel out the impact of improvements in tax administration.
- Stakeholder risks are rated as high; vested interests lobbying for tax exemptions, internal tensions and wariness of change among FBR staff, potential disputes affecting provinces’ readiness to collaborate with the FBR, judicial interventions hindering implementation of compliance control measures or investigations of FBR staff who agree with a taxpayer’s appeal.
- The institutional capacity for implementation & sustainability is rated as substantial.
- A sustained reduction of tax expenditures, combined with legal amendments to close loopholes for tax evasion, will be the main tax policy contribution to tax revenues.
- In revenue administration, by far the largest impact on compliance will result from the real-time exchange and analysis (using BI tools) of taxpayer/trader data among the FBR and provincial tax authorities, other federal entities, foreign jurisdictions, and withholding agents.
- The electronic monitoring of production in key sectors will also make a major contribution to effective control of compliance.
- On the tax policy side, a reduction in the scope of the withholding regime will improve the business environment by reducing costs for withholding agents and taxpayers/traders alike. Likewise, agreement between the federal and provincial governments on the definitions of taxable items for GST and the principles of levying the GSTS would also reduce business costs related to filing and paying taxes. Revenue administration measures, however, will have the largest impact on facilitation.
- The most significant measures relate to simplified filing and expansion of e-services. In addition, the transition to risk-based audit will result in fewer, well-targeted taxpayer audits. Likewise, improved risk management systems in customs, in conjunction with contact less scanning equipment at major customs stations, will result in fewer inspections of cargo and faster customs clearance.
- The simplification of laws and processes related to appeals and automation of refunds will also benefit many taxpayers and traders.
- The tax system is complex because of overlapping jurisdictions with different laws, exemptions, and frequent policy changes.
- The Constitution assigns income taxes (except for income derived from agriculture), the GST on goods, customs duties, federal excises, and the CGT to the federal level. These taxes are collected by the FBR. The Constitution assigns the following taxes to the provinces: GST on Services (GSTS), tax on professions, agricultural income tax, motor vehicle tax, urban immovable property tax (UIPT), and other taxes related to real estate (e.g. stamp duty, capital value tax). This tax assignment fragments Pakistan into five markets in the services sector, it said.
- The withholding regime is also problematic because of the administrative burden it places on businesses that are obliged to withhold taxes, and because it distorts economic actors’ incentives.
- The requirement on retailers, wholesalers, and service providers to withhold GST and income taxes is a large part of the compliance burden on these taxpayers.
- The withholding regime for income tax also contradicts other policy objectives, notably expanding the formal economy and strengthening the financial system.
- The introduction of withholding tax on banking transactions in FY15/16 led to a decline in deposits, bringing the commercial banks’ currency-to-deposit ratio from 29 percent in FY15/16 to 40 percent in January 2019.
The Prime Minister of Pakistan on October 3, 2019, in a meeting, approved some important foreign-funded tax reforms. The Federal Government, in order to expedite the process for restructuring the entire tax machinery and introduce centralised collection of general sales tax (GST) on services and goods, constituted a seven-member Steering Committee under the supervision of Chairman of Federal Board of Revenue (FBR) Syed Muhammad Shabbar Zaidi. In addition to it, four sub-committees were constituted. The committees have been asked to examine the future status of the tax authority under the Federal Government as attached department or semi-autonomous body or completely autonomous. Other issues which the committees will look into relate to recruitment, retention, capacity, remuneration, financial autonomy, organisational structure and work process.
The important question is: Will the above actions, if implemented successfully, bring fiscal consolidation that is one of the daunting challenges faced by Pakistan? In fiscal year 2018-19, total payment, as budget documents, on account of debt servicing was Rs. 1987 billion against the budgeted figure of Rs. 1620 billion. Allocation for the current fiscal year is 2891 billion, 78 % higher than last year! If FBR collects even Rs. 5000 billion against the target of Rs. 5503 billion, after transfer of shares to provinces under 7thNational Finance Commission (NFC) Award of Rs. 3200 billion, net tax collection available to the federal government will be Rs. 1800 billion, which is short by Rs. 1091 billion of debt servicing of Rs. 2891 billion!! This shows the gravity of the fiscal crisis faced by Pakistan as aptly highlighted by Prime Minister during his meeting with Grade 22 and 21 officers of the FBR and asked them to collect at least Rs. 8000 billion.
Though the Prime Minister admitted in his speech that FBR lacks people’s confidence as well as there is huge lack of trust between the State and citizens regarding prudent spending of taxes collected, he failed to mention the massive revenue loss caused by his own and earlier regimes through money whitening schemes. The man he selected for reforming FBR was the most zealous proponent of the asset whitening scheme that was opposed by many in the federal cabinet. Now the Prime Minister wants a new tax agency to be established by the same person who wants to hold back the idea after angry protest by FBR’s top notches. Imran Khan conceded to their pressure and asked them to suggest reforms! For such occasions, great Urdu poet Mir Taqi Mir very correctly said: Mir kya sada hain, beemar huay jis ke subub; Usi attar kay londay say dawa laity hain (What a simple soul is Mir that he seeks medication from the healer’s boy, who is the cause of his ailment).
The World Bank estimates Pakistan’s tax gap at 10% of the GDP or Rs. 3.8 trillion. Our current tax-to-GDP ratio is 12.6% that according to the World Bank should be 23%. Among the 13 federal countries, Pakistan is second to last in the performance of provincial governments on tax collection. While the services sector accounts for 56% of GDP, it contributes only 0.5% of the GDP in taxes and about 11% in sales tax collection.
The World Bank analysis is that Pakistan has a complex tax system of over 70 unique taxes and at least 37 government agencies administering these taxes. Through $400 million lending, the World Bank is keen to help Pakistan develop a long term tax policy. But there are concerns that the money may be spent on building new offices and procuring furniture as was done in the last programme. The World Bank is also pushing for decisively moving towards a functional organisational structure to overcome current fragmentation and inefficiencies in the FBR. It is of the view that the functional system permits standardisation of similar processes across all taxes and facilitates simplification of procedures.
It may be recalled that the World Bank in 2004 extended to Pakistan $125.9 million, including IDA credit of $102.9 million and a UK DFID grant of $23 million, for Tax Administration Reform Project (TARP). The objective of TARP was to improve “the integrity and fairness of tax administration by improving organizational efficiency and effectiveness of the revenue administration”. It was a national shame that for improving the integrity and fairness of tax administration we agreed to such heavy external borrowing/grant.
Tragically, tax-to-GDP ratio in 2012, the last year of extended World Bank funded TARP, dipped to 8.2% from 10.6% in 2005 when the programme started! The World Bank in its report, “Implementation, Completion and Result Report” on TARP observed that “the current narrow-base of general sales tax (GST) in Pakistan remained almost entirely unchanged throughout 2005-2012, despite efforts to overhaul the indirect taxation structure by introducing a reformed GST featuring few exemptions and wide coverage of goods and services”.
The report while highlighting the poor performance of FBR noted that “different from other sources of tax revenue in Pakistan, administration of GST entails a full-fledged operation of major FBR functionalities, including: registration, monthly tax return processing, collection, refunds, audit and enforcement. GST operation also integrates joint effort from both internal revenue administration and customs since GST import tax is collected at the borders and zero-rating is targeted for export operations, besides other activities”.
For evaluating FBR’s overall performance during the 5-year-long TARP, the World Bank used GST administration as an indicator. The result compiled is highly disappointing—GST productivity turned out to be only 23 percent, compared to an average ratio of 34 percent worldwide. According to the World Bank, “the estimation covering the project life reflected an overall decreasing trend during 2005-06 to 2010-11 suggesting feeble tax administration efforts throughout the reform period”. Shockingly, during the reform implementation period, there was “a declining performance in both tax policy and administration”. Even during the economic boom (2005-08) GST productivity index “showed a rather declining trend despite modest buoyancy gains in FBR revenue collection, signaling relatively poor tax administration performance amidst relatively favorable overall economic conditions”, says World Bank.
The World Bank concluded that “during the economic crisis period and subsequent years (2008-11), GST productivity index declined at a higher rate compared to FBR tax-GDP despite a swift turnaround in project implementation and concomitant positive trends in some outputs by the last two years of project life”. The report while pinpointing out weak compliance levels, lackluster results in reform implementation, especially those related to short term actions aimed at curbing evasion through more effective enforcement actions by the final year of project implementation, noted “performance from 2008 onwards, far from the project’s objectives envisioned at the outset”. This is the sordid story of tax reforms in Pakistan even when enormous funds—over 100 million US$—and best professional advice was available.
FBR ruthlessly wasted borrowed funds of millions of dollars—Pakistan with tax-to-GDP ratio of 8.5% was at 155th among 179 nations at the end of TARP in 2011. According to reports, tax-to-GDP ratio further deteriorated to 8.2% during the financial year 2011-12. Not only did FBR fail to implement tax reforms, there were unprecedented increase in tax frauds that were not taken into account by the World Bank in its report (Acts of deceit and frauds, Business Recorder, July 31, 2011). World Bank in its report did not mention mafia-like operations of FBR that include amongst others, missing containers, refund scams, smuggling of goods, currency and narcotics, under-invoicing, and abuse of the legal tool of issuing Statutory Regulatory Orders (SROs) to favour the rich and mighty.
Pakistan is facing multiple challenges on the economic front: reckless borrowing by successive governments for meeting its day-to-day expenses, lack of resources for rapid infra-structure improvements, trade deficits, fiscal deficit, inflation, balance of payments, and what not. In these challenging times, we want more loans, even from World Bank to reform our tax system! Faced with grave challenges to combat terrorism, money laundering operations funding the militants and criminals, and the problem of ever-growing black money, which according to independent experts is about three times of the documented economy, our political leadership and tax officials opted for yet another foreign-funded tax reforms.
In the name of tax reforms since 2004, FBR has been imposing more and more obligations on the citizens of Pakistan. The nation has been burdened with a number of cumbersome tax terms and over 70 withholding taxes without any compensation. Now even the PTI Government, contrary to its claims of finding indigenous solutions, wants World Bank-funded reforms (sic) which is highly lamentable. What will happen—the same old modus operandi of hiring hand-picked foreign and local consultants to further destroy tax policy and administration?
The problem of Pakistan is that its tax system is not equitable. The burden of taxes is already less on the rich and more on the poor. In the face of this reality, the Government of PTI, like its predecessors, is resorting to more regressive taxation. Our potential is much higher than targets achieved by FBR.
In all democratic countries special house committees are formed by elected parliaments for conducting tax reform exercises. Here in Pakistan we are doing it through bureaucratic structures, which are outdated, inefficient, incompetent and corrupt. This is like asking the troublemakers to do trouble-shooting.
Pakistan’s tragedy is that things are always being done by people who are not eligible for that job. Military governments make constitutional changes and tax reforms are undertaken by tax bureaucrats, who have a proven track record of inefficiency, incompetence and corrupt practices.
Our present tax revenue potential, if monstrous black economy is dealt with iron hand, is not less than US $ 60 billion (Indonesia collected US$ 38 billion in 2018) provided that the existing tax base is made wider and equitable, black economy is discouraged, tax machinery is completely overhauled and exemptions and concessions available to some privileged sections of society are withdrawn. We wrote in ‘Tax reforms with borrowed refunds’, Business Recorder, February 8, 2019 but no heed is paid by Prime Minister and his team, rather he has opted for complete subjugation:
To achieve these goals we do not need any loan from the World Bank or other donors. If we take money from them then we are bound to follow their conditions, as beggars cannot be choosers. Many local experts can do the reform work either voluntarily or at much less cost than what we intend to waste on foreign consultants at the commands of World Bank and others.
It is an undisputed fact that FBR has perpetually and miserably failed to tap the real tax potential despite imposing all kinds of oppressive taxes, including many introduced by the present government through the Finance Act, 2019 [Taxes, prosperity and welfare, Business Recorder, August 9, 2019, Rationalising tax system, Business Recorder, July 19, 2019 and The Money Bill, Business Recorder, July 5, 2019].
It is strange that in the three-year plan approved by Prime Minister nothing is available about simplification of taxes. Whenever there is a demand or debate about simplification of tax codes, ease of compliance, facilitation of taxpayers and improvement in tax administration, the worst resistance comes from top notches of FBR, who think they are the ultimate wizards and nobody else has a right to talk about tax base-broadening reforms aimed at accelerating economic growth, promoting investment, boosting up savings to ensure fiscal consolidation. FBR now headed by a renowned chartered accountant must go for these and tell the self-acclaimed wizards to read ‘OECD Tax Policy Studies No. 19’, crux of which is quoted above.
As explained in ‘Overcoming fragmented tax system’, Business Recorder, October 19, 2018], Pakistan needs a paradigm shift in tax policy and revamping of entire tax administration—establishment of a tax authority that is capable of generating sufficient resources for the federal and provincial governments, It should be the top priority of the government. Through democratic process vide Article 144/147 of the Constitution of Islamic Republic of Pakistan all the provincial parliaments can jointly establish an autonomous tax agency, comprising specialists in the required areas. Taxpayers should be facilitated rather than forced to comply at multiple levels and that too at very heavy costs.
For effective running of FBR and other tax agencies at various levels, major information technology and human resource improvements in tax collection methods as well as effective audit techniques should be developed along with a rational tax policy. Tax reforms or three-year-plan approved by Prime Minister are meaningless without an efficient tax administration and investment-conducive tax policy—see details in ‘PTI and tax reforms’, Business Recorder, August 17, 2018.
The main emphasis of the PTI Government is still not on low-rate taxes on the broadest possible tax base, taxing the rich and mighty through alternate minimum tax and property tax according to the size of the house/office. Along with these measures, it is vital to bridge the monstrous tax gap which according to official claims is not less than 70%, the collection of which is essential as it can wipe out the entire fiscal deficit. This is, however, not possible unless federal government, after consultations with provinces, introduces harmonised sales tax on goods and services and establishes a single agency to monitor all inflows and outflows and document all the transactions relating to acquiring of assets. We have been advocating for it since long but nobody has seriously considered it, not even the PTI Government until recently.
The main challenge before the PTI government is to optimize tax collectionwithout hampering business growth and investment clime. It requires massive structural reforms, abolition of the existing complicated tax laws and procedures. New simple tax codes/procedures should be enacted in English and with versions in Urdu and local languages—details in ‘Need for National Tax Authority’, Business Recorder, October 20, 2017.
Tax agencies, before their merger into a single tax agency ( a process that may take a few years), should be equipped with modern Tax Intelligence System sending quarterly information to potential taxpayers about their economic activities so that they can be informed in advance as to how their incomes and expenditure should finally look like in their tax declarations. For promoting tax culture, it is equally important that there should be prudent spending of public money for welfare of masses through a transparent process. This perspective is still missing, not even made a part of the long-term planning approved by the Prime Minister.
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The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)