ISLAMABAD: Dropping clear hints about a salary freeze, the government on Friday presented two taxation options (plan-A and plan-B) for raising Rs1.95 trillion revenue next year.
The government’s economic team comprising Finance Secretary Dr Waqar Masood Khan and Federal Board of Revenue (FBR) Chairman Salman Siddique told the National Assembly’s standing committee that the plan-A envisaged introduction of RGST with an annual revenue target of Rs1.952 trillion for the financial year 2011-12.
If the RGST could not be implemented, they said, the government would go for plan-B which envisaged complete withdrawal of tax exemptions and zero-ratings to yield Rs1.968 trillion -- about Rs16 billion more than the RGST-based plan.
“An accountant will go for higher yield and an economist for expansion in tax base,” a participant told Dawn. “The choice is obvious.”
The revenue expansion plan indicated that the government would have to freeze the salary of government employees at least for a year because of tight financial position and unusually high salary increase allowed last year.
A member of the committee said the Punjab government had protested against the federal government’s decision to increase the salary of public sector employees by 50 per cent last year which put an additional burden of Rs53 billion on the province and only Rs30 billion on the centre. Other provinces expressed similar views.
Ms Fauzia Wahab, the chairperson of the committee, confirmed an expected freeze on salaries when she said: “How can salary be raised when you don’t allow increase in government income? There is no possibility of pay hike this year.”
She said that the RGST could be of great help in raising the government’s income. She expressed the hope that the tax authorities would exceed the target of Rs1.952 trillion revenue next year.
To achieve the objective, Ms Wahab said, the tax authorities would have to plug leakages in transit trade, improve efficiency and compliance and bring into the tax net over 750,000 people, identified through the National Database Registration Authority (Nadra) data, who lived a lavish lifestyle but paid no tax. She said the government should consider the Muttahida Qaumi Movement’s proposal to replace the National Logistics Cell with Pakistan Railways for the Afghan Transit Trade.
The committee was informed about the tax target for the next year, with or without RGST, and was told that gross asset tax would replace the existing one per cent turnover tax in the next budget.
It was informed that the government expected an additional revenue of Rs72 billion if RGST was implemented. About 16 per cent of Rs254 billion would come because of inflation and economic growth rate (normal revenue growth over current year) and Rs36 billion through administrative measures to achieve a target of Rs1.952 trillion against the revised target of Rs1.588 trillion for the current year.
Under the plan-B (in case RGST is not implemented), the government expects Rs1.968 trillion revenue. This includes Rs90 billion on account of withdrawal of exemptions and zero-ratings, additional Rs254 billion through normal revenue growth and Rs36 billion through administrative measures.
The overall size of the GDP has been estimated to increase from the current Rs17.403 trillion to Rs20.638 trillion. The tax-to-GDP ratio is expected to increase from 9.1 per cent to 9.5 per cent next year.
The FBR chairman said the existing taxpayers would be facilitated and enforcement measures would be adopted against evaders and short-filers. The tax base will be broadened through data cross-matching and an aggressive campaign for recovery of arrears.
The committee members expressed concern over Rs131 billion arrears which included Rs83 billion income tax, Rs38 billion sales tax and Rs10 billion customs duty.
The FBR informed the committee that it had detected Rs26 billion of illegal input tax adjustment mostly in large taxpayer units in Karachi and Lahore.
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