Lahore, April 30, 2015 (PPI-OT): Taxation policy is the fundamental part of the overall economic policy and planning of the country. The Institute of Chartered Accountants of Pakistan (ICAP) has always advocated for development of tax culture, documentation of the economic activities, strengthening of Tax Revenue Authority and Medium to long term tax planning.
Recourse to short term and Ad-hoc measure has shattered the confidence of good tax payers and coercive measures taken due to the budgetary pressures has adversely affected the economy resulting in fall in productivity, slowness in growth, increase in unemployment and higher budget deficit.
With these opening remarks Mr. Naeem Akhtar Sheikh, ICAP Council member and Chairman Committee on Taxation explained to the representatives of leading news media, the taxation issues affecting the Pakistan’s economy.
He said that most of the problems are stemming from the weakness in Federal Board of Revenue in their failure to effectively implement the fiscal laws and ensure compliance to taxation laws. There is an urgent need to upgrade the quality Human Resource of the FBR and the governance structure of the Board.
The Tax-to-GDP ratio in Pakistan has remained the lowest in the region, and is not sufficient for sustainable economic growth. The Service, Wholesale/Retail, Transport and the Agriculture business sectors are still not fully documented hence their contribution to the national exchequer is extremely low. He emphasized introducing structural reforms to get out of the economic vicious cycle. Such process could not be undertaken meaningfully in Pakistan on account of lack of democratic structure.
He proposed that’s cope and structure of the Policy Board, which was formed under section 6 of the Federal Board of Revenue Act, 2007 (as amended by Finance Act 2011) should be reviewed. It should act as a forum to debate national tax policy in consultation with all the stakeholders. Unfortunately, under the existing section the role of the Board is limited and is more for providing guidance in framing fiscal policy. Moreover it is also non-functional due to its heavy composition.
ICAP’s view is that the Policy Board should be entrusted with formulation of fiscal policy making as a support to legislative function. The Board should be headed by Minister of Finance and should include the Minister for Planning and the chairman of the respective committee of both houses of the Parliament, along with the Chairman FBR, Secretary Finance and members from cross section of civil society.
He explained that the primary goal of a revenue authority is to collect the taxes and duties payable in accordance with the law and to do this in such a manner that will sustain confidence in the tax system and its administration. The action of tax payers-whether due to ignorance, carelessness, recklessness, or deliberate evasion- as well as weakness in a tax administration means that failure to comply with the laws are inevitable? Therefore the tax administration should have in place strategies and structures to ensure that non-compliance with the tax law is kept to the minimum.
The tax system is marred by menace of tax evasion, under reporting, tax fraud, corruption, smuggling, and under invoicing to name the few. This inequity in the system is also hitting hard to compliant tax payers, as there are no level playing fields and they have to compete with tax dodger’s\evaders, which is making their businesses unfeasible.
The honest tax payer has to bear the brunt of excesses by department and the burden of those who connives and gets away in the system. The examples of the same are stoppage of tax refunds due including VAT refunds, raising of arbitrary demands, collection of advance and undue taxes etc.
He said that the solution lies in drawing a comprehensive risk based strategy and an effective Revenue authority to ensure implementation of the strategy and an effective monitoring of the same. The FBR Head Quarter needs to be reorganized with functional specialization clear flowing all the way down to the level of field formations at LTU and RTO levels. Four functional divisions need to be created in IR namely Operations/Enforcements, Tax payer’s audit, Registrations (broadening of tax base) and litigation support/legal at FBR with clear demarcated staff at field formation level.
Tax Audit is yet another weak side of the FBR. There is urgent need of capacity building of the field formation officers with specialised training to undertake the challenges of tax audit. An effective audit acts as a deterrent against misreporting, frauds and tax evasion.
The existing structure of Audit Wing and its field formation, he said are not geared to undertake the required task. Tax audit if properly planned and executed can act as the most effective deterrent towards under reporting. There should be proper documentation of the audit process and the same should be carried out in a structured manner including a review by the supervisor before drawing any final conclusion.
An effective revenue organization must comprise trained and dedicated persons with integrity, transparent processes, a comprehensive information system, and taxpayer education. He also commented that the tax on services by provincial laws without attending to any intra provincial and federal issues has created further complications for the genuine tax payers in particular and for the economy in general.
Complete harmony is required among the federal and provincial sales tax laws to relieve the tax payers from undue hassles and unwarranted litigation with tax authorities. Appellate process which has a vital role in facilitating the tax payers, need to be revamped and make it more independent and objective. Currently the tax payers are compelled to recourse to the higher courts for obtaining stay against the decision of the tax authorities.
He said that detail proposals have been made for administrative reforms, direct and indirect taxes to improve the tax system in the country. The Budget Proposals 2015-16 can be accessed from ICAP website at http://www.icap.net.pk/wp-content/uploads/2013/12/Budget-Proposals-2015-16.pdf He assured the media representatives’ full support of the Institute to the national cause of revamping and overhauling the taxation system. He urged the media to create awareness on socio-economic and national issues and said that media can play an important role in bringing the country out of the crisis.
For more information, contact:
Institute of Chartered Accountants of Pakistan (ICAP)
Chartered Accountants Avenue, Clifton
Category: General Business News