May 23, 2006	Tuesday	Rabi-us-Sani 24, 1427

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ISLAMABAD, May 22: The Central Board of Revenue (CBR) has said the introduction of Universal Self Assessment Scheme as part of the tax reform measures was a calculated risk and hoped it would evoke a positive public response.

“We expect people to respond, once they are confident what we are telling them is correct,” said Salman Nabi, member (Direct Taxes) CBR, while speaking at a pre-budget seminar organised by the Business Administration department of the Air University here on Monday.

He expressed the hope that the CBR would be able to collect more taxes when tax returns were filed in September this year. He said forced compliance of the tax regime could not be persistently sustained, and added that the stress was therefore on voluntary compliance.

Mr Nabi said a number of steps were being taken to expand the tax base. He said the tax system had been simplified and taxpayer-friendly environment had been created. Large taxpayers typically account for 60-70 per cent of total tax collection as against 25-30 per cent and five per cent by medium and small taxpayers, respectively. Out of total population of 153 million, the working age urban population was 20 million.

He, however, said there were many people who were paying taxes, but had not joined the system. There were 5.5 million telephone subscribers, out of which one million getting monthly bills of over Rs1,000 were withholding tax payers.

The number of mobile phone users was about 27 million. Mr Nabi said 28 million bank account holders, 2.6 million industrial and commercial electricity consumers and 1.74 million motor vehicle owners were also paying withholding tax.

He said the large fiscal deficit at an average of seven per cent persisted in 1990s, resulting in sharp accumulation of public debt which increased from 91 per cent to 109 per cent of GDP. It came down to 59 per cent in 2005. Public debt was 473 per cent of total revenue in 2003-2004 and 457 per cent in 2004-2005.

The CBR member said the persistent large fiscal imbalance led to increase in the interest burden, and servicing the country’s public debt put large claims on meagre government resources.

He said 38 per cent of the total revenues were consumed to finance debt servicing in 1990-1991, which touched an alarming proportion of 64 per cent in 1999-2000. He said in 2005, it had been brought down to 26 per cent.

Mr Nabi said an advance ruling system had been introduced under which a potential foreign investor could know how he would be treated under the tax law in Pakistan, before carrying out a transaction in the country.

An out of court settlement system has also been introduced for dispute resolution.

Mr Nabi conceded that the tax-GDP ratio in Pakistan was one of the lowest. He said the people did not want to join the system for various reasons, including a general tendency of tax evasion, failure to develop a tax culture and lack of education.

Answering a question about agricultural tax, Salman Nabi said the agricultural income fell under the domain of provinces under the Constitution.

He said the CBR was expanding the scope of electronic filing of tax returns, while documentation was still a problem area.

Well known economic analyst and chief economist of a private bank Saqib Sheerani termed the upward trend in the overall economic growth rate for few years as over-heating in the economy and said the growth rate of 8.4 per cent was not sustainable. “It is just like constantly driving a car at a speed beyond its designed capacity,” he said.

He warned against unfortunate consequences on the macro- economic framework, if the economic growth was not slowed down to make it sustainable.

Mr Sheerani said the growth rate had not delivered as far as job creation was concerned. The government claims to have created 5.5 million jobs in three years, but he observed that it was not a correct figure.

He suggested that the tax rates for corporate sector should be lowered to expand the tax base in the formal sector. He said the manufacturing sector in Pakistan needed some respite.

The resident editor of Dawn Islamabad criticised the privatisation of PTCL to a government and Pakistan Steel Mills to a consortium of foreigners. He noted that this amounted to undermining the economic interests of the country.

About the much talked about bilateral investment treaty between Pakistan and the United States, he said there was no social infrastructure to absorb billions of dollars.