Low numbers of taxpayers reflect FBR’s long-standing failure: IMF KARACHI: International Monetary Fund (IMF) has said that it is failure of Federal Board of Revenue (FBR) as only 1.2 million individuals and companies file income tax returns in a country of nearly 180 million people. Sources told Customnews.pk that the IMF was not happy with the FBR’s past performance for not taking advantages of reform program. In a report IMF said that about 118,000 entities are enrolled in the sales tax system but only 15,000 actually pay any tax, with 82 percent of total sales and federal excise revenue coming from only 100 companies. “These low numbers reflect the long-standing failure of the FBR to efficiently administer the system and the inability of previous reform efforts to deliver sustained results,” the IMF said. The IMF made these statements while approving $6.65 billion loan for Pakistan. The lending agency advised the government functionaries to develop and implement a strategy to strengthen tax administration, with the technical assistance of the IMF and the World Bank. “While key elements of the strategy will need to be defined, it should include significantly stepping-up the FBR’s enforcement activities and improving its legal authority (such as to facilitate asset seizures for tax evaders and to presumptively bill taxpayers),” the IMF said. “The anti-money laundering framework will need to be fully applied in this effort,” it added. The Fund once again advised the implementation of a full Value Added Tax (VAT) as the first-best option to raise tax revenue. However, it said that if this remains politically unfeasible, other permanent tax policy measures could be considered to come closer to it by wholesale reductions in exemptions and concessions, and by fully incorporating services into the tax net. The administrative authority to grant tax exemptions via Statutory Regulatory Orders (SROs) should be eliminated to prevent further degradation of the tax net. Income tax should integrate income from all sources, concessions and exceptions should be eliminated, withholding should be adjustable, with the minimum tax on turnover remaining as a control for deductions. The IMF said that to address the federal fiscal imbalance, the revenue mobilization will have to play an important role in restoring fiscal stability. The federal government will need to use additional revenues resulting from tax measures or improvements in tax administration to reduce the deficit. “Lowering the share of resources, however, runs counter to the 7th NFC award and the 18thamendent of the Constitution. Options could include applying a lower provincial share of the pool only at the margin or— on a transitional basis—committing the Provinces to run surplus. Such cooperative outcomes could be pursued under the umbrella of the Council of Common Interest,” it advised. Eventually, a revamp of the revenue sharing formula will be required when the 8th NFC Award is negotiated over the next two years. “A better match needs to be obtained between revenue and expenditure responsibilities which would not leave the federal government with chronic deficit, while the provinces run surpluses,” the IMF said and further advised a secondary objective of the new formula should be to better divide revenue responsibilities to facilitate an improved tax system. “Currently, income tax responsibilities are divided by type of income and sales tax responsibilities are split between goods and services, which complicates tax administration,” the IMF said.
Posted on: Mon, 25 Nov 2013 08:09:12 +0000