May 8, 2006	Monday	Rabi-us-Sani 9, 1427

THE Central Board of Revenue (CBR) wants an increase in the number of income taxpayers as well as the over all tax revenues. It seeks an amount which reflects the current higher economic growth and the larger incomes of the rich.

An average increase of 20 per cent annually is sought both in the number of income taxpayers as well as the overall revenues they pay.

CBR Chairman Abdullah Yousaf wants to double the number of income taxpayers within five to seven years. Earlier, he had said the number of taxpayers now was 1.3 million, which should rise to 1.5 million by the end of the year.

Simultaneously, he wants the amount of tax paid to rise to Rs825-850 billion, an increase of about 20 per cent from the current year’s target of Rs690 billion.

Earlier, the next year’s tax target had been proposed at Rs900 billion but that has evidently been found too ambitious. Hence the climb down to Rs825-850 billion.

In fact, the current year’s target was originally set at Rs690 billion and that has been raised to Rs708 billion, reflecting better tax climate. The CBR is encouraged to do that because the tax collection in the first 10 months of the year ending April has risen to Rs536.4 billion against the last year’s collection of Rs451.1 billion in the same 10-month period – a rise of 18.3 per cent.

Due to heavier imports, particularly of automobiles costing over a $1 billion, the custom revenues alone have increased to Rs95 billion in the same 10-month period against Rs80 billion in the same period last year.

While Mr Abdullah Yousaf wants more people to pay income tax and existing tax payers to pay more tax, he has advised the taxation officials not to file bogus cases against taxpayers. He had earlier said candidly that 70-80 per cent of the cases filed against the taxpayers were bogus.

He had also said that out of 1150 cases filed with the Supreme Court, 1000 had been disposed off and hearing in the rest 150 cases would start this week. His enlightened approach to tax issues has certainly helped to reduce the animosity between the taxpayers and the taxation officials.

In the area of customs, where many reforms are being introduced he wants the mis-declarations, under invoicing, smuggling and claiming large spurious refunds to come to an end. He proposes new amendments to the custom rules in the new budget.

The tax revenues can be increased by new taxpayers, old taxpayers paying full taxes and the large number of tax exemptions being reduced or finally eliminated and the refund of taxes being done away with.

While the official policy is not to levy new taxes but to eliminate or reduce exemptions, the CBR has been stressing the need for doing away with the exemptions. But the businessman wants the exemptions, particularly to promote larger exports.

The World Bank and the IMF too, having stressing the need for eliminating the exemptions never fail to call for larger revenue mobilization.

The IFIs neither welcome the tax exemption nor refunds nor approve any other revenue reducing measure in a low tax paying economy. But the government feels the need to provide for tax exemption, refunds, and subsidized export credit to reduce the cost of production and exports.

As long as the country is afflicted by sustained inflation and prices keep on rising, the exports will have to be buttressed by refunds, rebate, tax exemption etc. The progressive businessmen welcome tax-free import of their essential inputs and exemption from other levies and no refunds. Such an ideal situation has been too illusive.

Price stability is essential for a steady increase in exports but that has been very illusive in our high inflationary conditions.

Now, the high cost of oil at $75 per barrel and other petroleum inputs add to the cost of production and exports. So, the government has to come to the help of the exporters including through a reduction in the rate of export credit.

Abdullah Yousaf says that a great deal of investment has been made in the textile sector to modernize it and make more competitive in the new world trade dynamics and he wants the industry to give up some of the old habits and demands which ultimately stunts the growth of the economy. He wants the textile sector to develop as a value based industry and face the international challenges in this sector.

The government has urged the industry to higher well-known international consultants in the industry and face the global competition bravely. The government is ready to subsidize the right consultants.

More of the textile exporters should avail of this option after modernizing their industry and face the international competition spiritedly.

It is easier to make more people pay taxes and those who pay now pay more, when the economic growth rate is high- as high as 8.4 per cent per cent last year and 6.5—7 per cent this year.

When the industry, services, and trade doing well more taxes should come and more persons should become participants in the economic growth. Hence the expectation of higher tax collection.

If instead the rate of economic growth is low or flat, the rise in tax revenues is bound to be nominal. But it is up to the taxation authorities to collect more revenues in such an environment rather than be content with a nominal increase. Large windfall gains, which continues, should be properly taxed.

Detailed audit of the customs show there is extensive corruption. And the exposed officials do want to surrender their loot. Legal hitches too stand in the way of full recovery of the embezzled taxes which are to be recovered now though improved legislation.

Larger revenues should not mean more extensive corruption, to add to the fact that the largest sector agriculture with its 23 per cent share in the GDP is exempted from taxation in a land ruled by feudal lords and tribal chiefs under the military umbrella.