KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has stressed the need for taking serious measures in close consultations with the real stakeholders to broaden tax base and improving tax-to-GDP ratio, as number of return filers have decline by more than 23 percent to 1.31 million tax returns till the first week of Dec 2020 compared to 1.69 million returns filed in the tax year 2019.
FPCCI President Mian Anjum Nisar said that the FBR has failed to obtain return of income from NTN holders and increase the number of active taxpayers during the last decade, indicating the bad governance and weak tax management of the tax department.
According to the data, the FBR has received about 23 per cent less income tax returns for the tax year 2020 while the tax received with returns stand at Rs6.5 billion during the period against Rs12.8 billion of the same period of last year, reflecting a decline of 49 percent.
There is an urgent need of reforming and simplifying the taxation system with the consultation of real stakeholders, besides addressing the issue of double taxation through integration of provincial and federal government laws and harmonization of FBR and Punjab Revenue Authority (PRA).
Nisar suggested that taxes should be charged one time by any provincial or federal government, as provinces levy same kind of tax, which the federal government has already imposed, escalating the cost of production and discouraging the registered manufacturers. He called for harmonization of Sales Tax and Income Tax laws, getting rid of conflicting provisions, suggesting enhancing tax base by automation.
He demanded the government to improve tax structure so that business and investment could flourish in the country, as the existing tax structure discourages investment. He requested the government to focus on reducing tax rates and expanding tax base by bringing all exempted sectors into the tax net.
He said that high tariff of utilities and RD’s on raw material are also the factors discouraging exports. He said that coordination between the government and the private sector was vital for economic growth, proposing the government to develop policies that could provide conducive business environment in the country.
He called for strict measures to stop illegal trade, as the smuggling is not only causing massive shortfall in revenue collection but also discouraging the legal businesses and documented economy. Majority of the people don’t want to get them registered and preferred purchasing of smuggled goods mainly due to high duties on legal import.
He said that only direct taxes can improve tax collection, as the existing tax system is heavily skewed toward indirect taxation. He said the sustainable solution to Pakistan’s problems lies in the structural reforms, as we can see very large inefficiencies in tax collection, which needs to be removed. So, the tax compliance must be improved and tax base should be broadened, which cannot be achieved with a single policy change, but by a systemic approach.
He urged the authorities to introduce new tax incentives and extend the period of existing ones for attracting new foreign direct investments in line with the potential of the country.
“With a view to wipe out corruption there needs to develop local software and Apps with simplified system in Urdu so that interaction of human resource should be reduced.
The FPCCI has already submitted its proposals to meet the challenges being faced by trade and industry due to the outbreak of COVID-19, as its severe and adverse impacts on various aspects of the economy are quite visible. These impacts had led to negative growth rate, deterioration in current and fiscal balance, disruption in supply chain, and increased unemployment etc.
We have asked the the Federal Board of Revenue to reduce the tax rates to help increase competitive edge of indigenous products in both local and global markets, as high tax rates provide incentives for tax evasion and corruption and results in high cost of doing business.”
“The tax agency should conduct a study to find out what has gone wrong that even after penalizing the non-filers, they are happy to pay more by way of advance tax instead of filing returns,” he urged.
He recommended that the current sales tax regime of VAT mode should be reviewed and incase enforcement is not possible it should be overhauled, to eliminate corruption and the negative financial impact on businesses due to delay in refunds and provide level-playing field to the organized sector.
He said heavy reliance on withholding taxes is affecting the enforcement capabilities of the FBR administration, since majority of tax collections is through the withholding tax regimes and not through enforcement measures.