ISLAMABAD: Federal Board of Revenue (FBR) Chairman Syed Shabbar Zaidi has said that the upcoming budget will include measures to clamp down on the country’s bustling parallel cash economy.

“My objective is very clear and simple: to document the economy,” he told Dawn on Friday.

He did not elaborate on the tools that the FBR plans to use in order to document the cash economy but he did hint at further amendments to State Bank of Pakistan (SBP) laws to discourage the use of chit (parchi) for trading.

Chit or Parchi trading involves conducting business transactions at doorsteps without the hassle of documentation or tax liabilities.

He said the prevalence of a parallel banking system is not only illegal but is causing massive losses to the government in the form of tax revenues.

Vowing to take strict action, he warned that “we [FBR] will arrest such people who will do trade through chit.”

Hiding in plain sight

Shifting spotlight on shop keepers, clothing and grocery sellers and middle men, FBR chairman said that these clusters continue to operate in the domestic market without paying their due taxes.

“We [FBR] are serious to put a hand on the cash economy”, he said, adding that there is no intention to further add the tax burden on the existing taxpayers.

He also mentioned that the upcoming budget will include measures to bring these sectors in to the tax net.

According to research report on Pakistan’s informal economy, “Many self-employed persons are involved in tax evasion and underground economic activities because there is no formal system of documentation for self-employed persons and their activities”.

FBR chairman said that doctors, engineers, chartered accountants, lawyers, hotels, restaurants and jewelers to mention a few are dealing in cash and are not on the radar for taxation.

“I am quite serious to clamp down on professional service providers dealing in cash .... We are very serious about bringing all those in tax net who deal in cash”, he added.

Pakistan’s economy is cash heavy as majority of the population usually carries out transactions in cash which is mostly untaxed.

The government in the last mini-budget, in order to increase the number of return filers, waived tax on cash withdrawals from banks for the return filers in order to encourage tax filers to use banking instruments for business activities.

The last Tax Reform Commission (TRC) Report also recommended the government to discontinue prize bonds in the range of Rs25,000-40,000, and doing away with the Rs5,000 currency note. According to the TRC, the high denomination-bearer instruments are usually utilised to fuel corruption and tax evasion.

Informal economy

Zaidi said his first priority will be to document the economy to bring undeclared and non-declared downstream sectors in to the tax net.

He said the announcement of tax amnesty was in line with the government’s efforts to document the un-taxed economy.

“We are fine tuning the rules to make it clearer for those who want to declare their assets”, he said, adding the rules will be finalised soon.

Asked whether he is taking these measures on the recommendations of the International Monetary Fund, Zaidi said that FBR is taking these measures on its own.

“We don’t need to wait for IMF to do good things.”

On the issue of real estate taxes, the chairman said the valuation table will be brought at par with the actual transaction value.

“We know there will be strong resistance from elites from doing so,” he added.

The government is also under immense pressure from the Financial Action Task Force (FATF) to document the economy.

Sharing his vision for future taxation system, he said the key fundamentals of reforms will be to establish trust between government and people and minimise personal interaction through use of technology.

He said taxes will be levied on real income and there will be no discriminatory taxation in the country.

Published in Dawn, May 25th, 2019