- Seeing dreams of the future
“I have a dream”. These were the famous words which led to a drastic change in the USA, uttered at a key junction of history. With the budget pending approval, I too have a dream to share with the readers.
The dream starts with the federal budget of the Islamic Republic of Pakistan having just been approved. There are widespread celebrations across the country, for many of the promised reforms have been delivered with a path for a longer term change laid down. Pakistan Tehreek-e-Insaf’s government has fulfilled its commitments despite some very difficult and challenging economic and geopolitical circumstances. Some of the major reforms and steps taken along-with their justifications, as presented by the Minister of State for Finance Mr Hammad Azhar, are detailed below.
Tax Facilitation & Ease of Doing Business: Several steps have been taken to reform the taxation system and structures. Firstly, the computerised national identity card (CNIC) has been declared as the National Tax Number (NTN) and Sales Tax Registration Number (STRN) for all citizens with pre-filled returns available using integrated databases of various institutions. This has not only made it extremely easy for any Pakistani to start a business having both the NTN and STRN, hence promoting a culture of entrepreneurship, but is also expected to help broaden the tiny existing tax base as the number of filers and ultimately taxpayers are forecast to increase with the increasing documented nature of the businesses.
Furthermore, to facilitate the businesses, reduce the taxpayer harassment and plug the taxation revenue gap, it has been announced that the FBR will focus its audit resources on withholding agents, using technology-based portals where all documents are to be uploaded and matched with minimal human interaction.
Only those taxpayers against whom there is definitive information and/or those claiming a benefit in the shape of an exemption or refund would be liable to an audit. This has resulted in a major confidence boost among the masses.
Corporate and Agricultural Exemptions: Blanket tax exemptions on various businesses as well as the agricultural sector have been withdrawn. This is expected to generate substantial additional revenue as these sectors constitute 30 to 40 per cent of national economy as per various studies.
The sadness on missing many more positive reforms engulfed me but the realisation soon struck me that this is the same sadness that engulfs every Pakistani post-budget every year. Let’s hope and pray that this year will be different
These sections have previously been out of the tax net without any substantial benefit to the GDP. The Government has now decided to instead facilitate the farmers to increase the productivity as outlined below while bringing these sectors within the tax net. Prime Minister Imran Khan himself led the initiative despite severe opposition from many big landowners in the National Assembly and the Senate.
Free electricity and water for agriculture: Another major reform to turn around the ailing economy in an agricultural country has also been taken. Keeping in view the fact that Indian Punjab’s output and productivity has been surpassing Pakistan’s and contributing materially to the Indian economic strategy, the Ministry of Finance has given its strategic vision to place Pakistan as the agricultural leader in the region. Water and electricity are declared free for agriculture for those farmers having small holdings or renting the land. The taxes raised from agricultural sector are mostly reserved to fund this initiative.
Further Agricultural Reforms: A new institution has been created to buy all crops from the farmers at the Government-approved rates and supply them to various industries and markets, thereby ensuring the farmers will get their due while the middlemen and stockists’ induced shortages and inflation can be stemmed.
Furthermore all seeds, fertilizers and other necessities can be bought at discounted rates through this body, which has already listed all major quality suppliers in its approved lists. The volume of potential business has motivated suppliers to offer discounted rates in the hopes of additional business, increasing their profitability and helping them expand, in turn creating more job opportunities.
Tax Volume over Margin: Moreover, to make taxation less cumbersome and support the initiatives aimed at broadening of the tax base, the strategy of volume over margin has been pursued in that the tax rates have been drastically cut for both individuals and businesses to the lowest level in the entire region. This has positioned Pakistan as one of the most tax-attractive destinations in the region with substantial predicted investments expected to create job opportunities in the country particularly in the power, agriculture and textile sectors. This also created an incentive for businesses and individuals to pay their due taxes, being less cumbersome than the cost of avoiding it with the threat of stringent possible penalties.
HR Development & Educational Reforms: The listing criteria of stock exchanges now includes a requirement for the companies to annually spend at least one per cent of their total revenue on the education and/or professional training of their workers. Also, new non-corporate businesses spending more than two per cent of their turnover on the education and training of their workers, are offered tax rebates. These steps are topped up by an increased budgetary allocation of five per cent to the education sector. The impact of this allocation is not very drastic after the 18th Amendment but is a strong signal and precedent for the provinces to pursue.
Further reforms to support HR Development, Education & Entrepreneurship: Supporting the drive for education and entrepreneurship, Government has required all banking institutions to lend interest-free, at least five per cent of their total business to students and start-ups without any guarantees.
A fund has been launched, backed by insurance, to provide monthly returns to the banks to compensate for the loss of interest income while the fund along-with the insurance serves to act as a guarantee for abnormal bad debts in this sector.
Short-term Energy Reforms: Besides the CPEC and other energy projects, to address the energy crisis and its high costs issue in the shorter term, the solar energy sector has been given a tax-break for five years with a requirement to cap margins at 15 per cent, in order to ensure the benefits of the cost reduction will be passed on to the masses.
This step is expected to assist in resolving the severe energy shortage problem in the shorter term, as the cost of setting up solar energy systems has been one of the biggest hindrances in its widespread use despite Pakistan’s climate been extremely conducive for it. Furthermore, windmill energy sector has also been extended the same favour to capitalise on its potential for cheap electricity generation with minimal initial investment and running costs.
It was here that I woke up. The sadness on missing many more positive reforms engulfed me but the realisation soon struck me that this is the same sadness that engulfs every Pakistani post-budget every year. Let’s hope and pray that this year will be different.
The writer is a leading economist and experienced tax expert who holds five top professional finance, investment and accountancy qualifications CFA (USA), CPFA (UK), FCCA (UK), CA (ICAEW, UK) & Anti-Money Laundering Specialisation along-with substantial international exposure and represents Pakistan on Global Tax Forum while sitting on the boards of several think-tanks. His profile can be accessed at: http://omerzaheermeer.wordpress.com/about