Expanding tax base — A panacea to overcome budget deficit

At a time when country’s economy is facing multi-faceted challenges, the caretaker government has embarked upon an ambitious plan for restructuring and reforming the Federal Board of Revenue (FBR). With its special focus on broadening the tax base, boosting tax to GDP ratio and augmenting revenues to overcome persistent fiscal challenges, the caretakers are exploring all avenues to expand tax base. The government’s strategy involves a comprehensive approach, intending to bridge fiscal gaps by enhancing revenue collection – simultaneously trimming the expenditures. Notably, the reform plan includes separating tax policy and revenue divisions within the FBR – a move aimed at mitigating conflicts of interest in tax collection. Caretaker Minister for Finance, Revenue and Economic Affairs, Shamshad Akhtar recently highlighted the significance of proposed division, emphasizing that while the FBR concentrated on collection, a separate tax policy division should be there to formulate policies. She also expressed optimism that the FBR is expected to surpass the targeted revenue collection of Rs. 9.4 trillion, with plans for additional measures in case of any revenue shortfall. To broaden the tax base, the government is introducing a new Documentation Law mandating various agencies to provide data to FBR through an automated transmission system. Collaboration with the National Database and Registration Authority (NADRA) has been sought to facilitate this process. Furthermore, a key facet of the reform plan entails segregating customs from revenue collection mechanisms. The customs sector will pivot towards trade facilitation and border controls while revenue collection responsibilities will rest with the FBR. Stakeholders, such as the Islamabad Chamber of Commerce and Industry (ICCI), have advocated leveraging modern Information Technology (IT) systems to enhance tax collection efficiency. They emphasize replacing outdated tax collection systems with automation and increased machine utilization for streamlined processes. “The Board must take advantage of Information Technology (IT) systems for enhancing tax collection efficiency,” remarked President Islamabad Chamber of Commerce and Industry (ICCI) Ahsan Zafar Bakhtawari. “This transformative initiative must not only fortify the FBR’s ability to enforce tax laws but also simplify tax filing for taxpayers through dedicated offices,” he stated. Meanwhile, the FBR has taken proactive steps to promote a tax culture by establishing 145 District Tax Offices nationwide, with the goal of bringing 1.5 to two million new taxpayers into the system by June 2024. With the FBR already surpassing the five-month tax collection target and demonstrating robust growth in revenue collection, the customs’ functions will undergo redefinition as part of the ongoing restructuring. The Board has exceeded both the five-month tax collection target of Rs 3,480 billion as well as the monthly target of Rs 534 billion for November 2023. It has collected Rs 736 billion revenue against the target of Rs 534 billion in November 2023, registering a growth of 38 percent. The tax department has collected Rs 3,484 billion revenue against the target of Rs 3,480 billion during the July-November of the current fiscal year. “Businessmen are willing to contribute taxes for betterment of livelihoods,” commented President ICCI Ahsan Zafar Bakhtawari. “However, it is necessary to bring about changes in the system and introduce reforms to make taxation process more effective and equitable.” Underscoring the necessity of expanding tax base, the ICCI President emphasized on bringing new individuals into tax net to ensure a broader and more inclusive tax collection. “However, the business community should be consulted before implementing any tax-broadening measure,” he recommended. With our country struggling since long to address the deficit problem, there was dire need of comprehensive and multi-faceted policies to expand the tax base. The ongoing reforms underscore a pivotal moment in the country’s economic trajectory, with far-reaching implications poised to reshape revenue collection and fiscal policies for the future. It is obviously difficult for any country to keep the pace of progress and socio-economic development of its people when a few million people pay taxes among over 240 million people. Therefore, Chairman Pakistan Hi Tech Hybrid Seed Association (PHHSA), Shahzad Ali Malik has urged a comprehensive institutional approach, focusing on fundamental domestic tax policies to bolster tax capacity. Malik stressed the need for bold reform plans, rationalization of tax expenditures, equitable taxation of capital income and optimal utilization of taxes to drive sustainable change. Tax evasion has been a chronic issue over the decades that compelled respective governments to borrow more and more to bridge deficits that directly affected common men in terms of inflation and price hike. Seeing through the annals of history, since the inception of our motherland, we evidently saw many among us becoming billionaires in no time by benefitting from inefficient policies and weaker implementation of laws. In a scenario, when millions of our people are under threat of falling below the poverty line, their uplift could not be possible without more revenue coming to national kitty. Therefore, the country needs result oriented policies for steering it out of the persistent economic crunch and laying a sound foundation for coming generation to lead their lives in a prosperous homeland.