ICAP urges FBR to improve tax regimeApril 18, 2013
Karachi: The country requires a level playing field, where the ‘protected stakeholders’ are also taxed similar to a common man, however introducing reforms in an election year is indeed difficult as the focus of the interim setup is only on one thing elections, this was stated by Saqib Masood the Chairman, Taxation Committee ICAP while talking to journalists here Thursday.
He emphasized that the perception of the tax burden is shared by every citizen of the country in an equitable way must be the foremost objective to increase the tax base. The final and fixed tax regimes were introduced decades ago as adhoc measure to sustain tax collection, but to compensate economic mismanagement and defective collection system they had to be evolved into an important collection tool. These regimes, coupled with the frequently deliberated ‘amnesty schemes’ create negative perception about the whole taxation system in the eyes of the honest tax payer. The long term objective of any tax policy must be to remove this perception at the earliest.
He also highlighted that provisions are available in law which grant tax immunity to foreign remittances coming into the country. He said that hard work and effort put up by our countrymen in foreign lands is highly commendable, and the remittances they send to support their families in Pakistan are the backbone of the economy. However, these immunity provisions in unscrupulous hands lead to large scale tax evasion. He stressed that such immunity should be available only when a family member is sending foreign remittances, or remittances are sent for investment in plant & machinery.
Saqib Masood explained that developed economies use tax rates to attract investments. Schemes to provide higher tax depreciation and capital allowances are introduced in the years of recession, with the aim to stir up the economy. Different jurisdictions reduce corporate rates to attract corporatization. He said that similar measures are required to be taken in Pakistan, and ICAP has been advocating these recommendations since the last many years.
He reiterated that it is now imperative that the country’s tax base be broadened. He said that it is not sustainable for a country to collect substantial junk from indirect taxes which is equally shared by a common an. He said that ICAP has been giving various suggestions and recommendations to broaden the tax base for the last many years, and is now proposing that every person should declare his or her NTN or CNIC number mandatorily while buying or selling property and vehicles, travelling by air, or when paying membership dues of clubs.
He also highlighted that a tax collection mechanism collecting more than three-quarters of its revenue, is in itself a red-flag. The lower share of collection through audit / investigation measures shows the ineffectiveness of the assessment and audit mechanism prevalent at the department. He recalled that ICAP had put a considerable effort a couple of years ago to device a comprehensive tax audit framework. The framework was shared with the department with a view to build their capacity, but unfortunately, nothing crystallized. He offered that the Institute, and its Committee on Taxation, is more than willing to assist the department in capacity building of their audit and assessment functions.
He said that the tax rate disparity introduced last year for high earners in the ‘Salary’ class is top on the list of public grievances. More than 80% of the active tax payers belong to those earning income from salary; all being conscientious tax payers. The rule of ‘progressive taxation’ ensures that high earners pay higher taxes. However, the rates prescribed in the previous year were not progressive in nature. In some situations, an increase in salary of a few thousand rupees resulted in increase in taxation of more than a hundred thousand rupees.
He said that delay in the availability of the tax returns are a constant irritant for the tax payers.
He said that contribution to the Worker Welfare Fund and Workers Profit Participation Fund must also be allowed as deductible allowance instead of admissible deduction. He explained that in a loss making situation, a tax payer does not get benefit of these mandatory contributions.
The recent years have seen revenue collection delegated at the provincial level. However, ambiguity in the different legislation applicable in the country have led to disputes amongst FBR, SRB and PRA, causing problems for the end user; the business community. It is need of the hour to establish a mechanism to coordinate between the different stakeholders.
He also described the dilemma withholding tax regime puts on small companies, who are required to act as a withholding agent. He said that a section of the tax payers is of the view that the tax authorities should compensate these withholding agents to do work, which is actually responsibility of the tax authorities. Requirement to pay your own taxes is morally justified, but a requirement to collect tax from others and timely deposit in the Government Exchequer with the entire administrative burden is asking too much from the tax payers.