LAHORE: The estimated cost of tax exemptions in Pakistan on different accounts is around Rs 150 billion per annum. Textile and apparel, tractor, fertiliser, pharmaceutical, exploration and production, energy and high-tech industries are major beneficiaries of these tax exemptions, Pakistan Today has learnt.
The Economic Survey of Pakistan 2009-10 figures show that the country had paid Rs 147.140 billion under various tax breaks, including Rs 46.534 billion on account of Income Tax, Rs 27.409 billion on account of General Sales Tax and Rs 73.197 billion on account of Customs Duty.
Figures indicate that the textile industry, which contributes 26.40 percent of the large scale manufacturing, has been the main driver of the economy for the last 50 years in terms of foreign currency earnings and jobs creation, but has never contributed in any meaningful manner towards the public kitty. Federal Board of Revenue (FBR) estimates on the pretext of tax exemptions the textile industry alone is evading taxes some Rs 27 billion per annum.
Economic experts stress that, although the federal government is trying to implement tax reforms at the behest of the International Monetary Fund (IMF), the halfhearted efforts are stopgap measures at best. They underline that cash strapped Pakistan has no means to sustain daily operations with the country diverting nearly 60 percent of the total tax revenues on debt servicing, while a major chunk of the remaining 40 percent is being used up for war on terror, which shrunk allocations for social and economic development.
Analysts question the wisdom of maintaining tax exemptions at a time when exemption and evasion costs the authorities billions of rupees per annum, compliance of tax laws is negligible and the tax collection machinery is markedly inefficient.
Former Finance Minister Dr Salman Shah is of the view that the government must take stock of the ground realities. He insists that the previous government introduced zero-rating regime to curtail fake refunds and corruption, and it proved to be successful as tax collections increased. If the government withdraws exemptions, not only will revenue pilferage increase but the working capital of industries will likely shrink as well, he believes.
Lahore Tax Bar Association former President Muhammad Awais concurs with the view that the textile industry has never paid taxes, but he believes it is a failing on part of the government’s tax collection machinery. He reasons that the zero-rated tax regime was primarily introduced for export oriented industries, but textile and other zero-rated sectors have utilised the facility even for domestic output.
It is a case of lack of political will and the inefficiency of the government machinery, he forcefully added. Responded to a query, he agreed that both taxpayers and tax officials have hampered the correct implementation of new tax laws and audit. He reiterated that the FBR was to be blamed for leaving lacunas in the law.
Muhammad Awais proposed that if the government wanted to abolish the zero-rated tax regime it should impose taxation at the final stage to avoid issues arising from refund and working capital. A senior FBR official, speaking on condition of anonymity, said that the economy was passing through trying times as the debt to GDP ratio had reached an alarming level of 60 percent.
Exemption given by the previous government had been an unmitigated disaster and propagated a culture of rampant tax evasion. He estimates that tax evasion has reached around 5.8 percent of the GDP and is pessimistic of any improvement in the figure.
He also contended that revenue figures would shrink slightly after the imposition of reformed GST, but he stressed that in the long run, it would prove to be beneficial in creating a documented economy, which would ultimately increase the tax base and reduce the tax burden on the common man.
