Short-term revenue measures deterrent to fresh investment: PBC

KARACHI: Pakistan Business Council (PBC) has said short-term revenue enhancement measures pursued by Federal Board of Revenue (FBR) are disincentive to not only re-investment by existing units but are also acting as a deterrent to fresh investment in industry and the formal sector.
In its tax proposals for budget 2018/2019, it said that Pakistan is de-industrializing prematurely, the contribution of manufacturing in GDP is reducing, Pakistan are slowly turning into a nation of traders.
The PBC said that fiscal policy needs to create an atmosphere which promotes the creation of job, increase value-added exports and ultimately benefits the government in the form greater remittances and higher tax revenues.
Manufacturing jobs as opposed to those in the service sector, are primarily in the formal sector which provide a level of job security.
The PBC advocated that taxation needs to be based on the principle of ‘all income irrespective of source should be taxed and all taxpayers must file tax returns.’
The council believed fiscal space that the government is looking for to implement its ambitious socio-economic agenda, will not, and cannot be provided by continuing to increase taxation on the already taxed sectors of the economy. The taxation base needs to be widened through better documentation by bringing the under taxed, and the currently exempt sectors in the tax net.
The PBC said that tax policy and tax administration need to be separated. The current arrangement is leading to frequent changes in the tax laws as the government struggle with collection targets.
It said that introduction of measures like super tax initially for one year and then its continuation, the undoing of laws on group taxation and group relief, the tax on undistributed reserves, alternative corporate tax (ACT), the refusal to allow carry forward losses under the minimum tax regime, the refusal to clear refunds may have in the short-term helped shore up the FBR’s collections. These, however, in the long-run will only lead to a reduction in the FBR’s collections as corporate review their investment plans.
The PBC further pointed out that the arbitrary and non-transparent implementation of tax laws by FBR functionaries in their zeal to achieve unrealistic revenue targets is severely impacting the viability of the formal sector.
PBC, however, appreciated some measures of the present government including the bringing in of the concept of filers versus non-filers. However, the difference in tax between the filers and non-filers is not large enough to encourage the filing of tax returns.
It also noted with concern the inability of the government to take measures to regulate the real estate sector which has become a major avenue for the parking of ill-gotten wealth.
The failure of the FBR to ensure data-mining to identify those who are either not paying or underpaying their dues is also an area of concern for the formal sector.
The PBC said that commercial importers are abusing the final tax regime (FTR) / Presumptive Tax Regime (PTR) to undermine domestic manufacturing, the profits made through mis-declarations in imports values are staggering.
There is blatant misuse of the Afghan Transit Trade, wholesale and retail markets all over Pakistan are flooded with smuggled products, however, despite having the jurisdiction to act against the open sale of smuggled products, the FBR hides behind flimsy excuses like lack of support from local administration.
The revenue leakages in the customs department need to be plugged, massive under-invoicing from just China has in 2016 seen a gap between China’s reported exports to Pakistan and Pakistan’s reported imports from China of $3.5 billion.

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