Expert for firm enforcement of tax orders
ISLAMABAD: Former Federal Board of Revenue (FBR) Chairman Shabbar Zaidi has been adamant that the government must forcefully establish state authority by documenting traders, retailers, wholesalers and dealers, this which would lead to a clash between the political system and the Pakistani tax system. in the years to come.
Speaking as a guest on Aaj News’ ‘Paisa Bolta Hai’ with Anjum Ibrahim on Sunday, Shabbar Zaidi said, “I see a clash between the political system and the tax system of Pakistan in the coming days. The time has now come to enforce the decree of the tax in the country, but the political forces have not allowed to establish this decree of the state. I was also a victim of such political forces. In the coming years of 2023, 2024, 2025, there would be a clash, but the days when non-taxpayers like traders are now over to enjoy such luxuries of tax immunities and concessions.
On the other hand, the political system, which relies on the support of the trading community, would never allow the establishment of this mandate of the tax, which would lead to a confrontation-like situation in the country, he said. he adds.
The current ad hoc tax collection arrangement with retailers/dealers/wholesalers will not work in the future, he said.
The former FBR President said that the current PML-N government’s vote bank is the merchant community. The policy promoted by the PML-N government for the collection of taxes cannot go forward with the future tax system of the country. The PML-N government has traditionally been used to provide benefits to the undocumented sector of the merchant community. They destroy the industry every time they come to power.
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He said that the PML-N government’s tax policy will compress the existing documented sectors and continue to give benefits to traders and retailers, but it can no longer work. The days are over when such a policy could continue.
Shabbar Zaidi said the budget presented by the PML-N government for 2022-23 has destroyed the organized sector. The policy of collecting more and more taxes from only compliant and high tax paying sectors/companies will destroy documented sectors. It is not possible to document only manufacturers in the entire supply chain, excluding retailers.
He added that the government’s decision to collect levies from traders on their monthly electricity bills was also wrong policy. Even this system of taxing merchants through electricity bills was rejected by their merchant voting bank.
However, strongly defending the PML-N government, the former special assistant to the Prime Minister for Revenue, Haroon Akhtar, said that the PML-N government knows very well how to collect taxes and has proven it in the past. This is the same government that raised the tax-to-GDP ratio to 11.4% in 2016-17 and to 11.1% during its last term. This government is also an expert in managing the trader community and imposed 0.4% withholding tax on non-filers mainly covering traders and collected more than 20-22 billion rupees from non-filers. -declarants. The PML-N government introduced the turnover tax policy through a lucrative program of lower tax rates, he said.
Haroon Akhtar further said that the new government came to power just two months ahead of the federal budget (2022-23). They presented a budget under an accelerated procedure over a short period of two months.
He agreed that some budgetary measures that had not been thoroughly considered had subsequently been withdrawn. The government has taken the first step to return to the IMF program. Once the first step is completed, we will see the next step to assess the ability of the current economic team to handle the existing situation, he said.
Haroon Akhtar further stated that Pakistan has immense tax collection potential but due to political constraints we are now at this stage of documentation.
The former special assistant to the Prime Minister raised the question of why a government is reluctant to tax the agricultural sector having a major contribution to GDP. The manufacturing sector has been overburdened with taxes.
Responding to a question, Haroon Akhtar agreed that it is a big question that when all fiscal measures were agreed with IMF before the budget (2022-23), then why all taxes were not done at this that time and subsequent taxes were revised by the Ordinance.
However, renowned tax lawyer, Waheed Shahzad, Butt said the cost of litigation has increased due to certain measures taken in the last budget. The government was forced to withdraw measures such as collecting taxes from small retailers via electricity bills. Independent political will is needed to document low tax paying sectors. At one point, the government banned non-filers from buying properties and vehicles. Later, the policy was reversed due to pressure.
Butt suggested that the concept of non-filers be eliminated. The FBR itself promotes non-documentation by allowing non-filers to conduct financial transactions upon payment of higher withholding tax rates.
To a question, Shabbar Zaidi said that the budget presented by the PML-N government for 2022-23 only focuses on the additional taxes of already heavily taxed sectors/persons. The taxation of deemed income from immovable property has been challenged in court because the immovable property was incorrectly taxed. The government should have imposed “wealth tax” instead of giving it other names of deemed rental income etc.
Shabbar Zaidi said he does not see any good direction or taxation policy from the PML-N government in the country. The increase in revenue is the result of the rupee-dollar parity, inflation and heavy import taxation, but not structural changes in the tax system.
He said the average tax rate for the banking sector has exceeded 60%. A company whose year ended in December and which distributed the dividend is now obliged to pay a super tax of 10%, which is illogical.
Shabbar Zaidi said: “I consider three things a ‘curse’ in the tax system. First, the withholding tax on cash transactions, second, the difference between tax rates for non-filers and filers. In this case, we say that the non-declarant is a criminal but we will not treat him as a criminal. Third, the turnover tax is also not a good tax, but FBR generates revenue from said three taxes.
Copyright Business Recorder, 2022