Finance Minister Ishaq Dar said on Saturday that from the next fiscal year onwards the discretionary powers of the finance minister and the Federal Board of Revenue to issue tax exemptions and concessions through the Statutory Regulatory Orders (SROs) to businesses will completely end.
Talking to the media after the meeting of the tax advisory committee, he said the continuation or granting of new tax exemptions could be possible only through the higher forum of Economic Coordination Committee (ECC) on the cabinet. It is important to mention that Pakistan Today has earlier published this story on March 18 mentioning that the government has given firm commitment to the International Monetary Fund (IMF) that it will introduce legislation to permanently eliminate the tax exemptions and concessions through the Statutory Regulatory Orders (SROs).
The government has been under pressure of IMF to eliminate all kinds of tax exemptions to enhance tax collection. Fulfilment of the condition was required to maintain the ongoing IMF programme as well as to continue receiving loans from other IFIs.
The tax concessions are being rolled back from the current fiscal year and the IMF was assured gradual process in next three years. However, the IMF wanted more commitment which required elimination of discretionary powers of the finance minister and FBR. It is estimated that the tax exemptions through SROs cause a loss over Rs 450 billion per annum to the national exchequer. The concessions are mainly granted to highly influential industrials and companies.
The government is advised by the International Financial Institutions (IFIs) to end tax exemptions as it will help in enhancing revenue generation. The elimination of tax exemptions are expected to increase tax revenue by one and half percent of GDP. This will also help in implementing General Sales Tax (GST) in fully integrated value added tax (VAT) mode.
The FBR is working on a number of measures including introducing electronic volume tracking of production in the manufacturing sector that will improve sales tax collection. The FBR is also working on steps to temporarily close businesses, attach properties of tax offenders; and attach bank accounts of tax defaulters to withdraw the assessed tax liability directly from their accounts.
Major tax exemptions include plant, machinery, equipment, apparatus and items including capital goods, zero-rating of specific goods. The partial exemption on sugar causes a loss of over Rs 12 billion per annum. Most of the income tax exemptions are related to independent power producer (IPPs) which is estimated over Rs 50 billion. The education institutions including universities also remain outside the tax net.