Pak annual tax exemptions estimated at Rs200b

ISLAMABAD: The Federal Board of Revenue (FBR) estimates that it can generate around three per cent of the GDP in taxes by abolishing exemptions, an official document said on Saturday.

Influential people, industrialists, agriculturists and businessmen of the country are enjoying tax and duty exemptions to the tune of Rs 200 billion per annum including general sales tax (GST), which comes to 3 percent of the gross domestic product (GDP).

According to Federal Board of Revenue (FBR) first half (July-December) period report issued here on Saturday, Punjab has potential to generate an amount of nearly Rs 6 billion per year from agriculture income tax. Total collection of agriculture income tax is hardly Rs 1 billion that is mostly from Punjab. Sindh makes an insignificant contribution, while Baluchistan and NWFP have no contribution at all.

There is a probable estimate that in Punjab there is a potential of Rs 6 billion a year. Provincial taxes yield no more than 0.4 percent of the GDP, so that district and provincial governments depend on large fiscal transfers from the Centre to meet their expenditure responsibilities. The contribution of provincial taxes in the overall taxes collected is very low. While vesting the power to tax incomes on the Centre, presumably as a legacy of history, the constitution excluded income from agriculture from the purview of the income tax, violating the canon of horizontal equity and opening up scope for evasion and litigation.

The report said that some exemptions like the income tax threshold and GST and basic foodstuffs are granted to protect the most vulnerable groups of society from ‘onerous’ taxes.

Some (the GST threshold) are done for administrative reasons. Exemptions are also introduced to protect certain industries or provide for the development of infant industries.

There are also political exemptions for segments of the economy like diplomats, top echelon of civil and military bureaucracy, and employees of international organisations. Specific temporary exemptions are also granted to address issues that arise from time to time. The exemptions granted for import of essential commodities to counter inflationary expectations are a good example of these temporary exemptions.

FBR said that Pakistan made considerable progress in broadening the tax-base and ensured equity in the taxation system. A broad-based Value-Added Tax (VAT), bitterly opposed by the business community, is being proposed from the new financial year 2010/11 (July-June).

The implementation of VAT is one of the conditions of International Monetary Fund (IMF) under its standby arrangement of of $11.3 billion for Pakistan.

“The Value-Added Tax could be considered as an efficient tool for documentation of the economy, widening of the tax-base and affective taxation mechanism, leading to a substantial increase in government revenue,” the report said.

Punjab, the report estimated, has a potential to generate nearly Rs6 billion from agriculture income tax. Total collection of the agriculture income tax is hardly Rs1 billion that is mostly from Punjab. There are also political exemptions for segments of the economy like diplomats, top echelons of civil and military bureaucracy, and employees of international organisations.

In case of Pakistan, the threshold is Rs200,000 ($2,410) for the individual income tax and Rs5,000,000 ($60,240) in turnover for the sales tax.

Source: http://www.geo.tv/Business.htm