KARACHI, March 24: Speakers at a pre-budget seminar on Monday were unanimous in their views that the new government would confront difficulties in preparing the federal budget 2008-09 “as economy is under pressure owing to law and order situation and high cost of doing business.”

While listing a host of other factors ailing economy, speakers suggested to the elected government to revisit the current policies.

It was also noted at the seminar, organised by the Income Tax Bar Association, Karachi (ITBAK), that currently economy is confronted with a huge trade deficit, exorbitant financial and utilities cost, insufficient infrastructure, lower tax and investment-to-GDP ratio, shortage of electricity and water, and high rate of local and global inflation.

ITBAK President Abdul Qadir Memon, however, said that the bar would stress that the budget be prepared on principles of ‘equity,’ ‘rationality’ and ‘ability to pay’ and only then challenges facing the economy could be overcome.

He said there was a need to create tax culture through better voluntary compliance which would help broaden tax base.

Mr Memon further stated that undoubtedly it was encouraging that the Federal Board of Revenue (FBR) had fixed Rs1 trillion revenue target this year, but it was possible only if mutual trust between taxpayers, tax collectors and tax consultants was ensured.

Another speaker Saqib Masood said that Pakistan’s tax-to-GDP ratio was the lowest at nine per cent whereas even low-income countries have 18 per cent, middle income 25 per cent and high income countries had 40 per cent.

Similarly, he said, per capita income in Pakistan was the lowest at $909 in the region against $965 in India, $1,558 in Sri Lanka and $3,400 in Thailand.

He said a major hurdle in increasing tax base was non-discrimination between taxpayers and non-taxpayers.

He further said that other factor hampering tax collection was inappropriate remuneration level of tax collectors and multiplicity of taxes.

Mr Masood suggested that there was a greater need to give incentives to taxpayers against non-taxpayers and it was also equally important that there should be a change in the mindset of tax-collectors who should not be more than facilitators.

Some other measures suggested by him included integration of data base, improved transparency and fairness and reduction in number of taxes.

Saqib Masood also stressed the need for capacity building in the FBR in the area of indirect taxes and separation of appellate forums from administration.

Another tax consultant, Ali A Rahim, demanded that there should be no change in tax return forms for several years so that they become user-friendly.

For automation and facilitation, Common Tax Identification (CTI) number should be introduced for companies and firms and CNIC for individuals.

He suggested that reduced tax rates be given to small and medium enterprises (SMEs) and to those companies incorporated before July 1, 2005.

Mr Rahim proposed that the capital gains tax on sale of properties be reintroduced by the provincial governments, and its collection should be handled by the FBR and then transferred to provinces.

Similarly, he said capital gains tax on sale of shares should only be exempted subject to certain conditions.

Rashid Malik presented his paper on sales tax and suggested a number of changes and amendments.