Tax Reforms

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Current situation

The present tax collection by the federal and provincial governments is highly unsatisfactory. The Federal Board of Revenue (FBR) is not collecting even half of tax. The contribution of provinces in total tax revenues is only seven per cent and the overall national revenue base (tax and non-tax revenue) it is around eight per cent. The performance of provinces in collecting agricultural income tax is also unsatisfactory. This is a common issue both at the federal and provincial level arising from absence of political will to collect income tax from the rich. The collection of agricultural income tax is less than Rs2 billion by all provinces together in fiscal year 2017-2018. Pakistan will have to increase collection at all levels of governments to bridge fiscal deficit that has reached 6.6 per cent of GDP (Rs2.3 trillion) for the fiscal year 2017-18. The new federal and provincial governments must immediately prepare finance bills to tax the rich. Tax collection and compliance at national level cannot be improved without introducing an integrated Tax Intelligence System that can correlate sales tax collections on goods and services with income tax returns and monitor all transactions.

Promises

1.PTI will reform FBR and increase the tax net through a robust tax policy, efficient tax administration structure and effective enforcement mechanism.

2.Increase FBRs autonomy by reducing the influence of Ministry of Finance and will ensure FBR is performance managed.

3.Champion sustainable initiatives to reduce taxes on businesses.

4.Simplify tax assessment rules for corporations and small businesses.

5.Integrate tax registration with associated processes to reduce the transaction cost of paying taxes.

6.Improve audits by establishing risk engines and smart algorithms to identify potential taxpayers for audit.

Progress

PTI will reform FBR and increase the tax net through a robust tax policy, efficient tax administration structure and effective enforcement mechanism.

13 October 2018

The government decided to implement the recommendations by Tax Reforms Commission’s (TRC) on a fast track. The Finance Minister Asad Umar said that the government is ready to amend laws and bring administrative changes to implement the TRC’s recommendations. The government is also bringing legal and administrative changes to curb under-declaration of real estate values. The TRC has also proposed the setting up of a national tax agency and stripping the Federal Board of Revenue (FBR) of its policymaking role.

2 November 2018

The government is considering new taxation reforms to bring wealthy individuals into the tax net and additional export incentives to strengthen external accounts. The government is facing a challenging task to generate Rs4.4 trillion in revenue in the current fiscal year.

20 December 2018

The FBR has devised a comprehensive plan for tax reforms to accelerate revenue collection in the next six months of the current fiscal year. The reforms will be targeted in three areas; in updating laws and policies to simplify tax system; refining the tax administration process in terms of registration, submission, customs, audit, customer service; and introducing latest technology. The government has decided to install track and trace technology in the FBR to check under reporting of production. The government is already working on installing such a system for the tobacco sector to check its tax evasion.

13 January 2019

The experts on tobacco taxation have come up with a concrete proposal for tobacco tax reforms. According to the proposals, it is predicted that the tobacco tax reform would generate significant additional total tax revenue of about Rs205.9 billion over three years, equivalent to an average annual increase in total tax revenue of about 51%.

13 February 2019

The online tax collection system was launched in Balochistan by the Excise and Taxation Department. Balochistan Chief Minister Jam Kamal Khan Alyani said that financial resources of the province will be enhanced from the current Rs15 billion to Rs40bn per annum in the next few years by making tax collecting machinery more effective (Dawn, 13 February 2019).

6 March 2019

The PM Imran Khan approved the first-ever ‘National Tariff Policy’ of the country that aims at ensuring transparency, predictability and institutionalizing the entire structure of tariff regime of the country.

9 March 2019

The Khyber Pakhtunkhwa (KP) government is committed to collecting Rs50 billion during the next five years on account of service taxes levied, which will be utilized for development projects undertaken across the province.

Champion sustainable initiatives to reduce taxes on businesses and simplify tax assessment rules for corporations and small businesses.

23 January 2019

The Finance Minister Asad Umar presented the third finance bill for the current fiscal year during the National Assembly session. The features of the bill related to tax are:

1.Reduction of the tax on income generated from loans to small businesses, agriculture sector and low-income housing from 39pc at present to 20pc.

2.Withholding tax on bank transactions waived off for tax filers.

3.Small businesses exempted from submitting withholding tax returns every month; will do so only twice every year.

22 March 2019

The FBR held a number of sessions in Karachi and Lahore for the leading tax consultants, tax managers and businessmen to create awareness about recent tax reforms undertaken by the board for ease of doing business. These reforms contain number of facilities introduced by FBR for the medium and small sized companies, including payment of income tax, sales tax and custom duty online through Alternate Delivery Channel (ADC). Online payments of pension contributions and social security contributions have also been introduced by Employees Old-Age Benefits Institution (EOBI) and Punjab Employees Social Security Institution (PESSI).

Increase FBRs autonomy by reducing the influence of Ministry of Finance and will ensure FBR is performance managed.

8 November 2018

The federal cabinet decided to separate revenue collection administration from tax policy formation to promote equity and transparency in the tax machinery. The FBR role will only be confined to tax administration and collection. The cabinet was informed that over 3,000 e-notices were sent to individuals who did not pay taxes. FBR has taken several steps like the currency declaration system at 24 major entry and exit points to stop currency smuggling.