ISLAMABAD, Oct 29: The ministry of commerce has proposed the lowering of tax rates with a view to broadening the existing narrow tax base as well as reducing incentives for corruption. It is also aimed to help increase incentives for joining the formal sector.

The proposal has been made by the ministry aimed at sorting out “regulatory issues in domestic commerce”. In its latest study, “The State of Domestic Commerce in Pakistan,” the copy of which was also made available to Dawn, the ministry also called for having continued focus on rationalising the income tax structure.

It said that the introduction of self assessment scheme had helped in lowering compliance costs and reducing corruption. Also sales tax regime requires significant work, besides the rationalisation tax rate.

Similarly, the ministry is of the view that sales tax chain needs full documentation and that the compliance procedures need to be streamlined. The zero rating of textile sector to get rid of a major portion of the refund game was a big positive step.

It noted that the Customs clearance process has been improved a lot over the last few years. “But we need further improvements to ensure speedier clearance and less discretion for setting tariff rates to minimise chances of corruption and delays.”

More detailed studies of the taxation system are needed to pinpoint all threshold problems that distort incentives and could be affecting the growth of enterprises as well as the entire sectors. This requires micro-studies of tax systems across the board, but is something that the FBR can accomplish on its own.

Removing these distortions need not have any tax revenue implications and so should be a win-win for both businesses as well as the government.

Most of the retailers have a problem with their taxable level of income for paying sales tax.

The report pointed out that the taxation structures impose significant compliance costs on businesses and this cost is higher for small and medium sized businesses as a percentage of their sales or turnover, as compared to the larger businesses.

There are significant threshold effects, which distort incentives for registration as well as growth of enterprises and thus create significant distortions.

Most manufacturers as well as service providers have similar issues with the tax authorities. Issues related to local taxes have been addressed to a certain extent over the last decade. Most provinces have reduced/consolidated the number of taxes they levy and though some work still needs to be done regarding labour levies, local taxes are not a major cause of regulatory problems for businesses now.

The procedures might still be a time consuming and there are still some problems of corruption in this area, but these are not a major regulatory concern any more.

Almost all retailers have talked about the poor quality of infrastructure services offered by the state. The problems with telecommunication facilities have come down significantly in the last few years. The main problems that exist now are with Wapda, local and national road network providers, water, sewerage and solid waste management providers.

Tariff rates for commercial usage of electricity are the most expensive in the country, and then come industrial rates. Domestic usage and tube-well usage rates are the lowest. But this tariff structure defies economic and developmental logic.