TAXATION is an integral part of fiscal policy. It should not be viewed in isolation. Taxation should aim at promoting economic growth, broadening of tax base, and welfare of citizens through progressive taxation. The budget is around the corner and should aim at restructuring taxes in the light of the broader fiscal policy.
The budget should introduce minimal adjustable withholding tax (WHT) on the purchase of US dollars exceeding 1,000. Purchase of dollars for the purpose of imports and educational and medical expenses should be exempted from WHT.
Turkey is imposing 0.3 per cent advance tax on the purchase of dollars. In order to stabilise Turkish lira in the recent currency depreciation, the Turkish government introduced significant measures, including WHT on dollar purchase and 0pc WHT on interest related to Turkish deposits in banks.
Pakistan is facing the same dollar appreciation streak. This proposal will serve three things; it will help in stabilising the dollar rate in the long term, discourage hoarding of dollars for speculation, and help in anti-money-laundering operations.
The health and environment tax/levy be introduced for three years on sectors that are negatively impacting the two sectors, such as cigarettes, beverages, liquor and auto industries. Presently, Australia is charging 2pc medicare levy on taxable income. Cigarette, beverage and liquor industries are affecting the health of the citizens and raising health and medical expenses of the government. It is burdening the government expenditure. Hence, health tax should be imposed to compensate the rising health expenditure bill of the government.
Likewise, the auto industry is causing environmental degradation and increasing the trade deficit of the country. It should also compensate the government in fighting environmental expenses.
The government should lower the tax rate on profits on debt. The present tax rate of 15pc on profit on debt is discouraging documented savings in the banking sector and is encouraging the parking of money in non-development sectors, such as hoarding of wheat, rice, sugar, dollars, gold, etc. This is negatively impacting the economy overall.
Lower tax on banking profits would boost deposits in the banking sector, give banks leverage to the finance sector, industries and businesses, discourage hoarding, control inflation, encourage savings and benefit pensioners and small savers.
Property is a safe haven for parking untaxed money. Many transactions in the real estate sector are routinely done through power of attorney of immovable property instead of through registration or documented transfer. This is common practice for evading taxes.
The registrar is not legally bound under section 236K/C to collect taxes on the basis of power of attorney. Sale/purchase through power of attorney should be brought under the tax regime. It will help in curbing money-laundering and meeting the Financial Action Task Force (FATF) requirements, increasing revenue and documenting the economy.
Ali Hassan Lashari
Deputy Commissioner, Large Taxpayer Office,
Published in Dawn, May 9th, 2022