ISLAMABAD: Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh has said the government has opted to offend the rich to increase tax ratios for laying the foundation of a stable economy.
“The rich will have to be true to the country and pay taxes,” he said at a post-budget press conference here on Wednesday. He said he had set a challenging revenue target of Rs5.550 trillion not for the Federal Board of Revenue (FBR) but for himself to create a fiscal balance.
He regretted that Pakistan’s tax-to-GDP ratio at 11-12 per cent was among the lowest in the world. “The rich in other countries are paying much more taxes than our rich. This is an unacceptable thing. If we have to offend some people for this, we are ready to offend.”
The PM’s adviser said some critics were genuinely asking how this Rs5,550 billion tax target would be achieved given the FBR’s past record. He said that under zero-rated regime, there was no tax on exports and this would continue, but when there were large domestic sales as well of export industries, they would have to pay taxes. “If you are selling your products to Germany, Brazil, England or elsewhere, there will be no tax and this impression was not correct that this regime is being changed, but when you have Rs1,200bn or so of domestic sales and pay Rs6-8bn, this is not acceptable.”
Dr Shaikh said the government was not against the people making money and flourishing, but it was also not fair that they paid Rs6bn or Rs8bn tax on Rs1,200bn sales. “They will also have to fulfil their national responsibility and pay fair taxes,” he said, adding that the government would ensure there was no difficulty in payment of refunds and would announce a complete game plan for smooth payments on the pattern of China and Bangladesh to minimise the period of refunds payment.
PM’s adviser says challenging revenue target of Rs5.550tr set to create fiscal balance
Similarly, he said that other industries (like air-conditioners, edible oil and ghee, paints, tyres, refrigerators, etc) would also have to remove transfer-pricing stages causing sales tax irregularities and losses to the national exchequer. For this, he added, a new system would be ensured to bring manufacturers under the normal tax system and print sales tax on end-products.
Dr Shaikh said there was no option not to achieve the revenue target notwithstanding the past performance. “This is a new regime and we will try our best. The stakes for the country are so high that it cannot be business as usual,” he insisted.
He said the government had limited options to reduce expenditures and had reduced its own expenses to send across a message that “we sacrifice first while asking people to sacrifice”. Therefore, the government had reduced civil expenditures from Rs468bn last year to Rs431bn this year. Likewise, he said, the armed forces for the first time in the country’s history also voluntarily accepted a freeze on their expenditure at Rs1,150bn.
“This is a very good message that civil and military leaderships are giving to the nation and the world that high-level leadership is united on how to control expenditures. And at the same time, we have to repay debts that we did not borrow because Pakistan cannot default. Pakistan has to allocate Rs2,980bn next year for interest payment while we froze defence expenditure,” he added.
The PM’s adviser said people would call it an IMF budget or a World Bank budget, but there was no denying the fact that Pakistan direly needed higher revenues and the challenging target of Rs5,550bn revenue would be met with a full effort of the government and the tax machinery because about Rs3,000bn would go straight to interest payments. “We have to achieve the target and stand with dignity among other nations. If Bangladesh and Sri Lanka have been able to raise revenues, we will also have to prove us and earn respect.”
The adviser said the government’s decision to do away with tax difference for filer and non-filer would go a long way in documentation of the economy and expansion of the revenue base, adding that the different tax rates for these two categories had wrongly provided a legal cover to non-filers.
He said a non-filer would have to become filer on purchase of a vehicle or property within 45 days after the transaction, otherwise a tax notice would reach him half an hour after the expiry of 45 days, asking the sources of his income. At the same time, he added, filing procedures would be automated in a manner that a person was able to fill a simple form in less than six minutes and become a filer without any interaction with a tax official.
On the occasion, FBR Chairman Shabbar Zaidi said that despite some reservations over tax targets, the government had done enough homework and analysis to ensure that certain sectors not contributing their fair share to revenues would not remain so.
Published in Dawn, June 13th, 2019