Published Date: Jun 7, 2021
Why Pakistan should widen its tax base
Experts have warned the government against overburdening the existing taxpayers as they claim it lacks a robust strategy for expanding the tax base in the next budget, adding that attaining the tax collection target for next year will be a challenging task.
“The government does not appear to have any out-of-the-box ideas for expanding tax base,” analyst Hussain Haider said during a pre-budget discussion hosted by the Islamabad Policy Institute (IPI).
After collecting over Rs4 trillion in taxes in the outgoing financial year, government is reportedly planning to set a tax collection target of Rs 5.8 trillion for the next year.
Finance Minister Shaukat Tarin has repeatedly said that the government would not further burden the existing taxpayers. However, experts were skeptical about the claim.
“Tarin’s claim looks unrealistic when seen in the context of the overall IMF programme and statements of some of the other officials,” Haider said.
Sakib Sherani, the former member of the prime minister’s Economic Advisory Council, said that the tax collection in the outgoing year was remarkable, but it had not come from widening of the tax base.
He said one reason is that the IMF programme leaves little bandwidth for the FBR to focus on other sectors that have been out of the tax net.
Sherani said that “automatic growth because of tax elasticity and expected increase in GDP growth” may take next year’s tax collection to about Rs5.3 trillion, but taking that further to meet government’s target of Rs5.8 trillion or IMF demand of collecting Rs5.9 trillion would be very challenging.
Dr Vaqar Ahmed of the Joint Executive Director Sustainable Development Policy Institute (SDPI) opined that the Rs5.8 trillion target may not be such a longshot because of expected revival of economic activity, the government’s plan to achieve growth rate of 4.8% and possible increase in oil and commodity prices.
He too, however, worried that much of the collection so far was coming through indirect taxes, while the government was still lagging behind in collecting direct taxes.
“Indirect taxes have implications for poorer sections of the society and the middle class,” he maintained.
Dr. Ahmed also emphasised the need for harmonisation of the tax regime and provincial governments making their tax machinery more efficient to dig deeper into tax bases.
Kamran Nasir, the CEO of the JS Global Capital, cautioned that failure to expand the tax base would land the government in problems. He said taxes should be sustainable and allow businesses to expand.
He also called for cutting government expenses. “It appears from the government’s current spending tendency that curtailing expenditures is low on its priority. Money in many departments is not being well spent,” he remarked.
Muhammad Asim, the chief investment officer at MCB, stressed the documentation of the economy. He praised the government’s strategy for growth in exports.
Faran Rizvi, an analyst, said government should learn from the boom-bust cycles of the past and try to make the growth more sustainable. He also underscored the need for rationalisation of taxes.
IPI Executive Director Prof Sajjad Bokhari said that notwithstanding the government’s claim about achieving a 3.9% GDP growth rate, there are questions to be raised about the basis, quality, and sustainability of this growth.