ISLAMABAD: The proposals firmed up by the tax authorities for making part of next year’s finance bill do not represent the vision of the government and need to be simplified and kept fewer than before to ensure ease of doing business and reduce compliance costs.

This was a clear message given by Economic Adviser Dr Abdul Hafeez Shaikh to the budget makers of the Ministry of Finance and the Federal Board of Revenue while beginning formal meetings on budget exercise for next fiscal year.

The government is planning to announce the federal budget in the first week of June.

“The budget philosophy (of the FBR proposals) is not aligned with the government’s vision of simplification of tax and tariff regime,” Shaikh was quoted by a senior official as telling the FBR team.

“Why are we keeping so many taxes in the list which actually yield very little or nothing and yet add a lot of hassle to the taxpayer, why can’t we bring down the number of taxes to four or five with high yield and get rid of others?” he questioned. “Make the budget a simple policy document, rather than a horrible story,” the adviser added.

Calls for fewer taxes to stimulate economy

Shaikh is also reported to have rejected proposals for slight increase in some taxes and noted that it was not time to increase tax rates amid a serious economic downturn and instead a stimulating approach be adopted. “Let us align the budget document with the intent and philosophy of the government to simplify issues and eliminate noises,” he was quoted as saying.

You have to justify the number of so many taxes, such as custom duty, additional custom duty and regulatory duty and what they deliver, Shaikh said. Commerce Advisor Abdul Razak Dawood, Reforms Adviser Dr Ishrat Hussain and Industries Minister Hammad Azhar also attended.

The central theme of his hard talk that followed a meeting of all the economic cabinet members with the prime minister earlier this week was that the number of taxes be reduced and their coverage increased and improved both quantitatively and qualitatively.

Concerns were also expressed over the tax refunds running over 5-6 years and why the tax machinery has not been able to check smuggling and effectively recover collections from bottlers, cigarette suppliers and similar consumer goods as contraband, duplicate and substandard products flood the markets.

“Have we accepted smuggling as part of life and don’t want to protect registered and documented businesses, where is our enforcement?” the adviser commented in a bitter talk to emphasise that the coming budget should reflect these themes.

He ordered that a follow-up meeting should present a table of 40-something taxes at different levels along with their size, impact and collection, compliance costs and sensitivity analysis, supported by their sector studies to reach an informed decision on avoidance of multiplicity of taxes and conclude how many were necessary, unavoidable and should be retained.

The tax authorities were also told that they could not simply use the name of International Monetary Fund to justify a tax measure or to subvert a reform process. The justification should be based on a combination of revenue yield, its impact on the economy and compliance costs to taxpayers.

The FBR was also informed that it would be required to meet around Rs5.1 trillion target for next year, almost 30 per cent higher than recently revised estimate of about Rs3.9tr for FY20.

The Ministry of Commerce has been directed to meet again and if it wanted to reduce duties from current 11pc to 1.5pc then better these should be kept at zero to avoid another hassle to businesses and come back with revised strategy within a week.

Likewise, matters relating to the ease of doing business should be bundled separately and at the same time, the number of withholding taxes and stages be reduced.

The government has decided to skip the priorities committee meetings this year to finalise a development programme that would be kept contained at about Rs600bn — down from FY20 level of Rs701bn owing to Covid-19 in line with the IMF talks — and would be directly taken to the National Economic Council for approval.

Published in Dawn, May 15th, 2020