The Pakistan Business Council (PBC) has proposed sweeping changes in the upcoming 2024-25 budget, urging the Federal Board of Revenue (FBR) to impose aggressively high taxes on non-filers in an effort to combat tax evasion and encourage compliance.
The recommendations are part of a broader initiative aimed at restructuring Pakistan’s tax regime to foster economic growth and enhance tax revenues without overburdening the already compliant sectors. The PBC’s proposals focus heavily on penalizing non-compliance while offering more conducive fiscal policies for the formal sector.
Targeting Non-Filers with Higher Taxes A key aspect of the PBC’s proposal involves significantly increasing advance taxes on various fronts for non-filers. These include utility bills, real estate transactions, and luxury expenditures. The council argues that such measures are necessary to bring more individuals and entities into the tax net, thereby reducing the burden on those who already comply with tax regulations.
The PBC also stressed the need for the FBR to harness the vast amount of data it collects from withholding agents to identify and integrate non-taxpayers into the formal economy. “The existing information must be effectively utilized to expand the tax base and ensure a fairer taxation system where compliance is not optional but a standard,” a PBC spokesperson stated.
Reform Proposals for a More Equitable Tax System Beyond addressing non-filers, the PBC outlined a comprehensive set of reforms aimed at overhauling the existing tax regime. These include:
1. Separation of Fiscal Policy and Collection: The PBC advocates for the separation of fiscal policy-making from tax collection, suggesting that ministries such as Planning, Commerce, Investment, Industries, and Finance should collaborate on policy-making outside the direct control of the Ministry of Finance.
2. Simplification and Predictability of Taxes: Taxes should be simplified and predictable, supporting business growth and the formalization of the economy. The PBC calls for tax reforms that promote wealth creation through fair means and facilitate industries that contribute disproportionately to the GDP.
3. Corporate and Capital Gains Tax Revisions: There is a call for revising the tax implications for corporate entities and the disparities in holding periods for capital gains taxes on the sale of company shares versus real estate.
4. Technological and Structural Changes in the FBR: Significant enhancements in the structure, resources, and technology of the FBR are essential before setting realistic tax targets. The PBC suggests separate targets for revenues from existing and new taxpayers to foster a more balanced approach.
5. Discouraging Cash Transactions: The council recommends restrictions on large cash transactions and improvements in electronic data interchange with key trading partners to reduce under-invoicing and smuggling.
The PBC also highlighted the misuse of tax and customs duty concessions in regions like FATA and PATA, which affects the competitiveness of other local industries. By addressing these issues, the PBC believes that the government can create a more balanced and equitable economic environment.
Implications of the Proposed Reforms These tax proposals come at a crucial time as Pakistan navigates through economic challenges, including its ongoing engagement with the IMF. By broadening the tax base and ensuring fair tax practices, the PBC aims to foster a more robust economic landscape that can support sustainable growth and development.
The proposed measures have sparked a lively debate among economists and business leaders, many of whom are calling for careful consideration of the potential impacts on Pakistan’s broader economic health. The success of these measures will largely depend on the government’s willingness to implement these reforms and the FBR’s ability to adapt to a rapidly changing fiscal landscape.
As Pakistan prepares to present the Finance Bill 2024, these recommendations, if accepted, could significantly alter the country’s fiscal policy, promoting a more inclusive and robust economic system that not only enhances revenue collection but also supports the growth of the formal sector.
