KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested measures to broaden tax base and improving tax to GDP ratio.
The apex trade body in its proposals for fiscal year 2020/2021, said that at present the total numbers of NTN holders in Pakistan are over 4 million.
However, the FBR has miserably failed to obtain return of income from such NTN holders and increase the number of active taxpayer during the last decade.
According to a study conducted by Jorge Martinez Vazquez and Musharraf 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07.
This shows that FBR during the last 14 years could not fetch much tax filers, despite prescribing higher withholding tax rates for non-filers.
The FPCCI said that FBR needs to 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.
It is desirable that measures should be taken to facilitate to those, who are already existing taxpayers and contributing in the national tax pool in all manners, so that they become goodwill ambassador for FBR.
Resultantly, since many years, the registered taxpayers are less than 1 percent of the population of our country, which need to be enhanced.
At present Pakistan has a lower tax-to-GDP ratio as compared to regional and other countries, which is causing serious disparity between various sectors of the economy.
All the segments of the society are not contributing their due share of tax on their income in accordance with their contribution in GDP, as evident from the following table:
Industrial sector: share in GDP 20.3 percent; share in tax payment 67 percent
Services sector: share in GDP 61.2 percent; share in tax payment 32 percent
Agriculture sector: share in GDP 18.5 percent; share in tax payment one percent
The above table depicts that the manufacturing sector is overly burdened in comparison to its contribution in GDP; whereas, agricultural and service sector (wholesale/retail, transport, financial sectors etc.) have a significant contribution in the country’s GDP with minimum contributions in the tax.
This shows a perceived unjustness in law where under payment by taxpaying sector is aggressively pursued, yet the interests of these taxpayers are not adequately accommodated.
The FPCCI proposed that for broadening the tax base and to improve tax to GDP ratios following recommendations are made:-
a) All the persons/authorities like Registrars, Co-Operative Housing Societies responsible for allocation/registration/transfer of immovable properties (industrial, commercial, residential and agricultural), motor vehicles registration authorities, clubs (private and public), credit card issuing authorities, Central Depository Company Limited, National Clearing Company of Pakistan, large scale private hospitals, educational institutions, electricity distribution companies granting commercial and industrial electricity connections, marriage halls/hotels providing catering services at all types of events, financial institutions distributing profits/interest on investments, (including national saving schemes), mutual funds, immigration officer for international travel etc.:-
i) Must obtain CNIC/NICOP/Passport number at the time of allocation/registration/transfer of immovable properties and providing of or rendering of any type of services or assistance; and
ii) Should submit prescribed information on six monthly basis to the FBR:-
b) FBR should maintain a database of above third party information enumerated at 1(a) and (b) above and generate complete profile for cross verification as well as discovery of new taxpayers.
c) Exemption under Section 111(4) of the Income Tax Ordinance, 2001 may be allowed only to the foreign remittance brought into Pakistan through proper banking channel by the Balancing, Modernization and Replacement (BMR) of existing industrial undertakings or for making fresh industrial investment.
d) Effective enforcement should be ensured for compliance of filing of Return of Income under section 114 of the Ordinance, 2001.
e) Presently the share of tax collected by the provinces in comparison to their contribution to GDP is very low even after the 18th Amendment in Pakistan’s Constitution. The Federal Government of Pakistan as such is required to help and assist provincial governments to strengthen their tax collection mechanism. In case a provincial government does not have proper infrastructure to collect provincial taxes then the Federal Government may be authorized to collect tax on its behalf. The Federal Government should also ensure that all provinces are collecting due tax on agriculture income.
f) At least for five years jurisdiction (other than LTUs, CRTOs) should be made and fixed on territorial basis to avoid slippages of potential taxpayers.
The FPCCI said that the above measures will help in increasing the desired tax base and remove the disparity among the existing taxpayers according to their share in GDP under the key sectors of the economy.
It further said that the proposed amendments would also result in bringing more persons potential to pay tax on and motivating them for registration with the tax authorities instead of increasing the burden on the existing taxpayers.