Making a budget: 90pc of proposals consigned to bin!
ISLAMABAD: Finance Ministry prepares the revenue estimates for a forthcoming federal budget far earlier than proposals of the business community or the Ministries are submitted for consideration and 90 per cent of these tax readjustment proposals are thrown in the bust bin.
This was stated by several members of the private sector who routinely submit pre-budget proposals for consideration. This was refuted by a Finance Ministry official who stated that the perception that the government does not give importance to the budget-related proposals is not based on facts; however he acknowledged that each and every tax/duty proposal cannot be accepted due to narrow revenue base and fiscal constraints.
One of the senior officials of FBR told Business Recorder that whatever revenue proposals come from the private or public sector, it is compiled in a file on the computer, with Customs and Inland Revenue proposals kept separate.
“The master file is already available in the computer and new proposals from the private sector/ministries are added to the main file. As the file is added each proposal is accompanied by an opinion including the reasons for opposing that specific tax proposal or supporting it along with its history,” he added.
“Each Chamber and Association sends its budget proposal to FBR some of which are good. We hold meetings with them and discuss financial pros and cons of their proposals individually,” he continued. The official added that some very important tax reforms, proposed by the Tax Reforms Commission (TRC), are under consideration for implementation in the budget for next fiscal year while some of them have already been implemented in the budget for 2016-17.
FBR recently held a brainstorming session for two days with Pakistan’s top tax experts determining what issues tax payers are facing and what new tax revenue mechanism are required to resolve those issues.
Qaiser Ahmed Sheikh, chairman of the National Assembly Standing Committee on Finance noted that various sectors of the economy begin the process of submission of their tax proposals through finance committees of Senate and National Assembly as well as through their chambers. The Overseas Investors Chamber of Commerce and Industry (OICCI) and Pakistan Real Estate Sector Investment Forum (PREIF) have submitted tax proposals for 2017-2018 to the Finance Committee of the National Assembly, he added.
Last fiscal year, the government accommodated as many as 86 proposals of the Senate Standing Committee on Finance relating to taxes, duties as well as development schemes from power sector to social sector etc. he said, adding that out of a total of 139 recommendations suggested by the committee, some of them were implemented fully, while other were implemented partially.
A meeting of Karachi Chamber of Commerce and Industry was held on Saturday to finalize the proposals for next year’s budget.
Ministry of Finance, Ministry of Planning, Development and Reforms and Federal Board of Revenue (FBR) start the budget exercise by February each year. Insiders in the Finance Ministry told Business Recorder that the government’s major task is to increase tax revenue by Rs 300 billion to Rs 400 billion per annum. While subsequent governments, including the incumbent, maintain that they are focused on enhancing the tax base and bringing the rich into the tax net yet indirect taxes whose incidence on the poor is greater than on the rich continue to form the bulk of government revenue. With respect to increase in direct taxes based on the ability to pay principle around 78 percent are collected through withholding agents and are in the sales tax as opposed to income tax mode, he added.
There is a need to reform the FBR through not only improving governance but also through ending all avenues of possible corruption and making the tax system more equitable. That still remains to be done, sources added.
“We don’t want to impose additional taxation on existing taxpayers but resource constraints compel us to do so,” insiders on condition of anonymity told Business Recorder.
“Sometimes we close those windows which are misused or abused like withholding tax was re-imposed on inter-corporate dividends,” sources added.
“The next budget would be an election year budget and the government is unlikely to impose new taxes on existing tax payers. It is also unlikely for the government to raise taxes on say mobile phone SIMs as that could be a political tool in the hands of the Opposition. Industrialists and commercial sectors, considered to be PML-N supporters, are also unlikely to face an increase in their tax rates. The rate applicable on filers and non filers is likely to be widened,” said an insider on condition of anonymity.
“At the end of the day the FBR can only recommend,” he added. “It’s up to the political leadership to proceed or not to proceed with our tax proposals. And finally the budget has to be passed by parliament and I don’t see why the Opposition criticizes the budget when the quality of their debate on the budget has been so poor in recent years,” he added.—MUSHTAQ GHUMMAN & ZAHEER ABBASI
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