KARACHI, April 16: The Chairman of Central Board of Revenue (CBR) Mr Abdullah Yusuf conceded on Saturday that the stock brokers and the property dealers made huge profits in the current fiscal year, and that they remained untaxed. He however, did not elaborate if any measures are being contemplated to bring income from capital gains on shares and property sale into tax net.
He was responding to the observations made by the President of the Management Association of Pakistan (MAP) Mr Javed Iqbal, a noted tax consultant Mr Masud Naqvi and a few other participants of a pre-budget seminar on Saturday. The CBR chairman was the key speaker.
Poverty, unemployment, investment and inflation are the areas of economy which the CBR Chairman counted as “some of the non-achievements”.
Javed Iqbal, the President of the MAP in his brief welcome remarks pointed out that the number of effective tax payees has not increased more than 1.1 million. Mr Naqvi and a few other participants spoke of the distortions in tax administration, and they mentioned, as one of the examples, the stock brokers and property dealers who escaped or evaded tax on their enormous incomes. Mr Ibrahim Sidat another speaker and a well known tax consultant was all praise for the government that, according to him, has brought a change in mindset of the tax collectors and functionaries.
While pointing out some of the achievements of the economic reforms taken up by the government in last four years, Masud Naqvi regretted tax-to-GDP ratio in Pakistan remained 9.5 per cent which was lowest in the region. With a much less per capita income than Pakistan, Sri Lanka has 16 per cent GDP ratio.
He was convinced that Pakistan has potential of achieving 15 per cent GDP ratio. The five per cent plus gap he said amounts to Rs 250 billion. Mopping up of this additional Rs 250 billion with anticipated collection of Rs 580 billion this fiscal year could have been used to transform Pakistan’s economy.
Naqvi did not mince words to point out that unemployment and poverty remain the biggest challenge for the government and he urged for a review of the reforms.
“Yes, there is a lacuna in the tax administration system,” Abdullah Yusuf remarked while referring to government’s inability to tax the fabulous profits earned by the stock brokers and property dealers this fiscal year. “Property is a provincial subject,” he argued in his defence.
The CBR Chairman agreed that the tax-to-GDP ratio in Pakistan is very unsatisfactory. His explanation was that agriculture constituted 25 per cent of the economy that by and large is outside the tax net. The services sector is 50 per cent of the economy. Of this the whole sellers and retailers are 16 per cent but their contribution in tax is only two per cent. Transporters and storage is 12 per cent of the GDP but give only one per cent of the tax. Manufacturing is 18 per cent of the economy but bears the biggest brunt of 60 per cent taxation.
“There is definitely lopsidedness in tax administration,” the CBR Chairman remarked while pointing out that the number of tax returns last year was 1.14 million which is 14 per cent higher than the preceding year. Of these returns 450,000 were from salary earners.
He informed the participants that out of 45,000 registered companies only 12,000 companies filed return. “Only 3,500 companies paid some tax,” he disclosed. In case of sales tax he said there are 88,000 companies and individuals registered. Of these 20,000 did not file any return.
“We have a very narrow tax base that is vulnerable,” Abdullah Yusuf remarked. “We have a collector who does not want to collect tax and a society that does not want to pay,” was his other spontaneous remark that amused the participants of the seminar.
The CBR chairman also agreed that withholding tax of six per cent on the import has indirect impact as it is recovered from the consumers. He informed the audience how the manufacturers who are refunded this tax are abusing the rebate facility. The manufacturers import goods and get refund of 6 per cent withholding tax. Instead of using this raw material for value addition, the manufacturers indulge in trading as they have a beneficial edge over the commercial importers.
He also agreed that inflation is in double digit and has exceeded the original 5 per cent projection. “But who would have imagined in June last, when budget was presented, that international oil prices would jump to $55 a barrel,” he argued while pointing out that inflation was then computed at $22 to 25 a barrel. “Rising oil price is an international phenomenon which will have to be absorbed,” he said.
But he was confident that the food related inflation would be brought under control if supply of the wheat and other commodities was well managed.
On Monday he said the CBR was putting into operation the KICT project under which the importer would inform the customs electronically of the bill of ladings of his consignment under a self assessment scheme. The customs will process it and clear the goods even before the ship touches Pakistan coast. “It is a revolutionary concept that we hope to expand by next 12 to 18 months to all parts of the country.”
Yet another radical measure being taken is to reduce the number of tax appeals. He said that there are 77,000 such appeals out of which 55,000 were pending at the first stage. “By February we have reduced this number to 28,000 and intend to bring it down further by next June.” These appeals filed by the CBR and the tax payers is a drag as the amount involved is hardly 5 per cent. A three-member Committee that include two from private sector and one official is sorting out all these appeals.
The CBR Chairman hinted at giving some concessions to the small and medium size business enterprises in the next budget. This could be by way of setting up industrial estates with developed infrastructure facilities under public-private sectors partnership, micro financing and sparing small units from round the year inspection by 27 government agencies.
