An aide to the prime minister said on Tuesday that withholding tax rates for non-filers of income tax returns would go up further from July.
Haroon Akhtar Khan, special assistant to the prime minister on revenue, said the government would ensure that it widens the difference in rates for filers and non-filers of income tax returns. His statement comes amid questions over the government’s moral authority to present the budget a month before its term ends.
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The government will further widen the difference from the next fiscal year 2018-19, said Khan. He was speaking at the Budget Seminar, organised by The Express Media Group. Akhtar maintained that the government would not impose any new tax in the budget that will be unveiled on April 27.
The PML-N government should not present next year’s budget, as its term is going to end on May 31, said former finance secretary Dr Waqar Masood while speaking at the occasion. He said that Article 86 of the Constitution allows a caretaker government to sanction expenditures for up to four months.
The presentation of the budget on April 27 would mean that next year’s budget would be made on the basis of only eight months’ data of expenditures, revenues and real sector growth, said Khan.
The government should have left the new budget for the next government, also opined Dr Abid Hasan, a former advisor to the World Bank. He said that it was apparent that Pakistan will have to seek another bailout programme from the International Monetary Fund.
Hasan said that the Federal Board of Revenue (FBR) should only focus on non-filers of income tax returns if it was serious to increase the tax base. The former World Bank advisor was critical of the FBR’s arm twisting measures that the machinery was applying to get more from the existing taxpayers.
For the last four years, the tax rates for the people who stay out of the net have been going up. Yet the income tax base remains extremely narrow and this year only 1.26 million people filed income tax returns – 131,000 less than last year.
We have taxed all possible sources of income and consumption and no further avenue is left to tax, said former FBR chairman Dr Mohammad Irshad. He said that those who are outside the tax net will not come in the net, irrespective how much cost they have to pay for remaining a non-filer. He said that the increase in tax rates provide more incentives to evade taxes.
The government is finding solace in penalising non-filers of income tax returns. Since the government is targeting Rs4.45 trillion in revenue collection in fiscal year 2018-19, increasing income tax rates for all non-filers of tax returns is one tool in hand to get additional revenues.
However, increasing the tax rates for non-filers would mean that except for 1.261 million individuals and companies that file tax returns the tax burden of everyone who undertakes any transaction or even spends on health and education will increase. There are 72 types of withholding taxes.
The different tax rates for filers and non-filers have become an easy way of revenue generation for the FBR without making efforts. It collects roughly 90% of total revenue through indirect taxes including withholding tax.
Akhtar said that in Pakistan nobody was ready to pay tax and even hospitals, doctors and big business firms were evading taxes. The special assistant defended the tax machinery and said that few FBR officers were corrupt.
He also spoke critically about lowering the tariff rates and signing of free trade agreements. “The free trade agreements have eroded Pakistan’s manufacturing base, which was also the reason behind high imports,” said Akhtar.
He said that in these circumstances Pakistan cannot achieve 7% annual economic growth rate without hitting a high current account deficit.
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Akhtar’s comments came in the background of current Free Trade Agreement talks with China under the second phase. Majority of the stakeholders see further trade liberalisation with China as a grave threat to the industrial base.
“Even the multinational companies complain that they cannot compete with goods being imported under various free trade agreements,” said Akhtar.
Published in The Express Tribune, April 4th, 2018.