"THE focus of the budget 2013-14 is to improve the
tax-to-GDP ratio to finally reach the targeted 15 per cent by 2018," said
Finance Minister Ishaq Dar while presenting budget proposals in his speech to
the National Assembly on Wednesday. Mr. Dar spell out nine steps of his government's
taxation policy —
Taxing those who are not paying taxes, enhancing the tax
machinery efficiency, removing anomalies, simplifying tax procedures,
broadening the tax base, rationalizing tax rates and exemptions, encouraging corporations
and documentation, facilitating taxpayers and eradicating malpractice and
corruption from the tax administration. However, most of these measures are not
reflected in the tax proposals announced by Mr Dar in the budget, and
therefore, look like political rhetoric. No innovation is visible, and the same
old measures have been used to pocket easy revenue to reach the revenue target.
The focus of the new tax proposals is to raise indirect revenue, and provide incentives
to industrialists. But it lacks any direction to lure fresh investment. The
government has imposed Rs209 billion worth of new taxes to meet the revenue
target of Rs2,475 billion for 2013-14 — an increase of over 23 per cent from
Rs2,007 billion in the outgoing fiscal year. At the same time, the government expects
that the economic growth and rise in inflation will add an additional Rs259
billion to the kitty. Meanwhile, the target for direct taxes has been projected
at Rs975.7 billion, while that for indirect taxes has been set at Rs1.499
trillion. The government is expected to realize an additional amount of Rs63.5
bil-lion through sales tax, Rs18.5 through. Federal excise duty, Rs1 billion
through customs duty and Rs35 billion through administrative
Measures like plugging loopholes in income tax and sales tax
regimes. Most of the income tax revenue measures, worth Rs83 billion, are
proposed in an effort to help the documentation of the economy. A relief of
more than Rs3 billion in in-come tax has been given mostly to industrialists.
Meanwhile, the one per cent increase in general sales tax from 16 to 17 per
cent will alone contribute more than Rs40 billion in sales tax collection in
2013-14. Federal Board of Revenue (FBR) chairman Ansar Javed said that the
revenue measures would help the government achieve the tax revenue target for
the next year. The proposed measures may help the FBR achieve the target, but
most of them will also have an ad-verse impact on consumers, as these are
inflationary. The increase in the tax rates can encourage corruption through
fake and flying invoices, be-sides tax evasion, and may also induced to reduce
consumption. These two factors might actually bring down revenues, instead of
raising them. And higher tax rates may also discourage the documentation of economy.
The taxation measures will in-crease the burden for some existing taxpaying
sectors, while easing it for others. Exemptions have been given on those
products or accessories, or industries winch are not willing to compete, and
prosper behind high tariff walls. There is also no vision in the tax policy to
lure fresh investment, except the enhancement of the tax holiday from five to
10 years in special economic zones.. Meanwhile, the duty exemption on hybrid cars
is likely to benefit the elite, and has nothing to do with promotion of industrialization.
It will be difficult to argue that the tax measures in the budget may pro-mote
economic growth. There are sectors where monopolies are impeding economic
growth, and thriving on domestic sales. Meanwhile, major tax exemptions stood
at Rs239.5bn in 2012-13, 16.3 per cent higher than Rs205.9 billion in 2011-12.
And the new finance minister has extended these exemptions for certain lobbies
and industries. In 2012-13, income tax exemptions had cost the exchequer
Rs82.39 billion, against Rs69.61 billion in 2011- 12, indicating an increase of
18.37 per cent. And this number will in-crease further following the exemptions
given in the new budget. Customs exemptions had hit government revenues by
Rs119.71 billion in 2012-13. A range of exemptions given in the new budget will
increase the figure to roughly Rs150 billion in the next year. These additional
exemptions will benefit lobbies that allegedly sup-ported the PML-N in the May
11 elections. Moreover, some major sectors like agriculture and services
continue to be under-taxed, while still others are not taxed at all reflecting
the
narrow tax base. For instance, agriculture contributes
hardly Rs 1 billion to the total: tax receipt, while its share in the national
income stands at 21.4 per cent. Similarly, the services sector contributes 36.7
per cent while it has a major share of 57.7 per cent in the GDP. There is a
broad consensus that the tax-to-GDP ratio can only be enhanced if all sectors
of the economy proportionately contribute into tax revenue. But nothing has
been done to correct these imbalances. For broadening the tax net, the old
practice of relying heavily on withholding agents has again been proposed..
More than seven new adjustable withholding taxes have been introduced, with the
government claiming that these will pro-mote documentation of the economy. But
this will simply increase the cost of doing business for firms and would be
borne by the end consumer These and other measures, like increasing the tax on
cash withdrawals from banks, will not increase the tax base and only act as
easy revenue getter for the government. NADRA data shows that there are over
3.8 million potential taxpayers. One must then ask what is it that stops the
FBR from bringing these people into the tax net, given that only 0.8 million
people filed tax re-turns in 2012. In short, there is no innovation in the tax
proposals presented by the new government, which seem to evolve around the
age-old practice of withholding and sales taxes. No announcements have been
made regarding audit of taxpayers or use of NADRA data to help bring
non-tax-payers into the tax net.
By Mubarak Zeb Khan
No comments:
Post a Comment