News Column

Prosperous tax culture linked to sustainable economic growth

May 14, 2014



Prosperous tax culture in necessary for ma sustainable economic growth, said Naeem Akhtar Sheikh (Institute of Chartered Accountants of Pakistan) ICAP President and the Chairman of the Taxation Committee

Speaking about ICAP taxation proposals, he said that the Institute has always advocated for documentation of the economic activities and long term tax planning. He said recourse to short term measures due to the budgetary pressure has adversely affected the economy resulting in increasing Inflation and deterrent to investments in the economic development of the country. Need of the time, the Chairman said is to make apposite decisions to put back the economic activities to its normal course.

He reiterated that it is imperative that the country's tax base be broadened. He explained that it is not sustainable for a country to collect more than three-quarters of revenue from indirect taxes. Ways should be found to increase the direct taxes. He said that ICAP has been giving various suggestions and recommendations to broaden the tax base for the last many years.

He emphasized introducing structural reforms to get out of the economic vicious cycle. In Pakistan on account of lack of democratic structure such process could not be undertaken meaningfully. Taxation policy is the fundamental part of the overall economic policy and planning of the country. This requires Transparency, Participation and Independence.

He informed that the Institute has suggested to the Government for forming a Policy Board which is to be entrusted to review the fiscal policies in the context of its impact on the economy. The prime objective of the Policy Board would be to debate and formulate national tax policy in consultation with the stakeholders. The Board may comprise of in broad spectrum, the eminent economists and other stakeholders like FPCCI, Tax Bar Associations, trade bodies, ICAP and other professional bodies.

He emphasized that the perception of the tax burden is shared by every citizen of the country in an equitable way must be the foremost objective to increase the tax base. The fixed tax regime and the final tax regime were introduced decades ago as ad-hoc measure to sustain tax collection, but to compensate economic mismanagement and defective collection system they had to be evolved into an important collection tool. These regimes, coupled with the frequently deliberated 'amnesty schemes' creates a negative perception about the whole taxation system in the eyes of the honest tax payer. The long term objective of any tax policy must be to remove this perception at the earliest.

The law provides tax immunity to foreign remittances coming into the country however he stressed that such immunity should be available only to a family member sending foreign remittances, or for remittances sent for investment in plant & machinery in order to avoid such immunity provisions in unscrupulous hands leading to large scale tax evasion.

The corporate sector which is the most documented segment of the economy has been neglected due to inadvertent measures taken by the Government in order to cater annual budget targets. Furthermore the manufacturing sector which contributes to GDP the most carries a greater burden of tax. The Service and the Agriculture sectors are still not fully documented hence their contribution to the national exchequer is extremely low.

He said that tax audit is the core function of any revenue authority and should receive the maximum focus and attention. Audit function should be completely separated from rest of the FBR. The audit at the field formation should only be conducted under direct supervision, scrutiny by the division based on risk areas identified during enquiry work. The prevailing 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.

There is urgent need of capacity building of the field formation officers with high level of technical skills and specialized training to undertake the challenges of tax audit. An effective audit will act as major deterrent against under reporting, frauds and tax evasion. The capacity of auditor in the present form is inadequate and cannot equip them with the necessary skill required to carryout the tax audit. Therefore, the Government of Pakistan should consider a creation of a special cadre for specialized auditors. This will allow the induction of professionals to meet the challenges of modern tax audit. He offered that the Institute, and its Committee on Taxation, is more than willing to assist the department in capacity building of their audit and assessment functions.

The tax on services through provincial laws is creating complications for the genuine tax payers. The Institute strongly stresses for complete harmony among the federal and provincial sales tax laws so relieve the tax payers from undue hassles and unwarranted litigation with tax authorities.

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. The representatives thanked the ICAP team and other members for the support.


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Source: Pakistan Press International