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A divisive move

September 24, 2018

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THE Imran Khan government has proposed to do away with a restriction imposed by the previous government barring tax non-filers from purchasing new locally manufactured automobiles and new and used imported vehicles, as well as immovable property priced more than Rs5 million.

The reversal of the policy, introduced by the previous PML-N government, has been sought in the Finance Supplementary (Amendment) Bill, 2018 tabled by Finance Minister Asad Umar in the National Assembly last Tuesday. The bill largely explains economic and fiscal policies the PTI government will pursue during its five-year tenure, at least in the near- to medium term as part of its larger plan to stem the financial crisis facing the country.

However, opinions regarding the government’s proposal vary.

No doubt, both the automotive industry and real estate developers are overjoyed by the decision which is expected to rejuvenate investment in the slowing property business and boost automobile sales that dropped by 18 per cent in August on a month-on-month basis.

The reversal of the ban on non-filers, introduced by the previous PML-N government, has been sought in the Finance Supplementary (Amendment) Bill, 2018 tabled by FM Umar in the NA

“This a very positive development for the domestic automotive industry,” Danial Malik, the chief executive officer (CEO) of Master Motors, told Dawn via telephone. The company is all set to begin assembly of Changan automobiles in Pakistan from December this year, both for domestic and export markets.

“The government will earn more tax revenue as sales of locally manufactured cars and other automobiles increase,” he contended. “With new car manufacturers entering the market and introducing new brands, the government should jack up taxes on imported and used cars with an engine capacity of 1,300cc and above, the way it has done with 1800cc and above vehicles.

“The car industry has been one of the top three contributors to Large Scale Manufacturing (LSM) growth for the last several years and an increase in car sales will contribute positively towards the gross domestic product (GDP), create jobs and boost the government’s tax revenues going forward.”

Similar views were expressed by an Islamabad based real estate developer who was hopeful of a new boost to property development and construction in the country as a result of the decision.

Others who do not have a stake in the property or automobile industry have also shown support for the government proposal as it did not distinguish between a tax dodger and a non-filer.

In its brief on the bill, KPMG Taseer Hadi and Company has termed the removal of restrictions on non-filers to buy land and new automobiles as a positive step as the policy was causing unnecessary hardship for the segment of the population not required to file tax returns.

Meanwhile some argue that the non-filer ban ran counter to the principles of the country’s constitution.

“Constitutionally, no government can deprive a person from purchasing and owning property or any other asset. Nor can it tell the industry who it can sell to and who it cannot because the government is not doing its job (of taxing the untaxed),” Lahore-based businessman Almas Hyder said.

“Such initiatives and policies never prove effective in increasing the tax base or the number of tax filers. If a government wants to broaden the tax base and document the economy, it should directly tax those who do not pay any tax instead of stripping people off their legal rights. The tax authorities have so much information and data on tax dodgers and evaders. Why don’t they act against them instead of destroying businesses?” he argued.

But critics of the removal of the restriction like former finance minister Miftah Ismail, who introduced the ban on the purchase of new automobiles and first registration imported cars by non-filers, feel disappointed by the reversal of the policy.

“It is very disappointing that the PTI government has lifted the ban on non-taxpayers from buying new cars and expensive land. We were under intense pressure from (the) auto companies and land developers but we didn’t budge. Today I am sorry to say that automakers (and property developers) have won and Pakistani taxpayers have lost,” the PML-N leader tweeted shortly after the bill was moved in the Assembly.

His views drew support from tax experts like Karachi-based Ashfaq Tola, who is also a former member of the Tax Reforms Commission.

Mr Tola wrote in his comments on the bill: “The restriction was much effective in increasing the tax net as more and more individuals were registering themselves with the Federal Board of Revenue and were filing their returns to become filers and to be able to perform transactions.

“(Moreover), the restriction had helped curb speculative business in both the real estate and automobile sectors. The (proposed) amendment (suggesting removal of the ban) will have a far reaching impact (on the economy) and affect the (effort) to broaden the tax base.”

Published in Dawn, The Business and Finance Weekly, September 24th, 2018