Appraisal of Comprehensive Scheme of Increasing Tax Base Proposed By FPCCI

Abstract

Pakistan ranks among countries with the lowest number of tax filers as percentage of total workforce. Its developmental needs and growing debt burden necessitate far higher revenue collection than is currently being achieved. Among many, one effective way to achieve enhanced collection is broadening of tax base (BTB). However, successive governments have failed to document the economy and tap true tax potential.

The reasons behind a narrow tax base are: complex tax laws and procedures, high rates of taxes, public distrust of revenue agency, resistance from vested interests, culture of non-compliance, rampant corruption, sub-optimal use of technology, uncoordinated working of governmental organizations etc. FBR’s capacity issues also contribute largely to the problem—the main issues are: inability to formulate evidence-based strategies, cumbersome organizational working, lack of transparency and accountability, demotivated workforce and resource constraints. As per FBR’s officers though, lack of public awareness which lies at the root of unsuccessful BTB efforts is mainly a governmental policy failure.

Business communities can offer invaluable insights and suggestions for BTB. Not taking the market forces on board risks alienating them and may lead to resistance against government’s policies. The FPCCI’s proposals related to integrated databases, enforcing properly filled withholding statements and returns, financial profiling, capacity building of provinces, tax credit for promoting documented transactions and taxpayers’ social acknowledgement are, for the most part, politically legitimate, financially sustainable and operationally feasible; and can be implemented after contextual adjustment and fine-tuning.

It is concluded that increased pace of documentation, substantial political will, removal of legal and procedural complexities and technologically driven processes will lend greater momentum to BTB efforts. The paper recommends following measures for making significant progress towards BTB: taxpayer education, use of proper incentives, data integration, territorial surveys and focusing on neglected sectors with high potential.