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7/28/2019 ISSUES OF TAXATION IN PAKISTAN AND ITS SOLUTIONS
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PAKISTAN:REVENUEMOBILIZATIONMEASURES&CURRENTTAXISSUESBy
ShahidHussain
Asad
Member(InlandRevenue)
FederalBoard
of
Revenue,
Islamabad
Pakistan
IMF JAPAN HIGH LEVEL TAX CONFERENCE FOR ASIAN
AND PACIFIC COUNTRIES
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SchemeofPresentation
A. OverArchingStructureofTaxAdministration
B. RecentReformsIntroduced
C. MajorTaxIssues
D. WayForward/ProposedReforms
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A.
Over
Arching
Structure
of
TaxAdministration
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Pakistan:FederalTaxes
IncomeTaxexceptAgriculturalIncomeTax
SalesTax(VAT)
FederalExcise
Duty
CustomsDuty
Petroleumlevy
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Pakistan:ProvincialTaxes Agricultural Income Tax
CapitalValueTax
Motor Vehicle Tax
Land Tax
PropertyTax
Cesses like Cotton cess, Sugar Cane cess Excises on Hotels, Cinemas, Etc.
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FederalBoardofRevenue
Apex Body for collection of Federal Taxes
Collects 90% of Federal Revenue
Formulation and administration of fiscal policies,
levy and collection of taxes
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FederalBoardofRevenue Continued
Resolving tax related disputesADRC
Conclude Double Taxation and Customsrelated Agreements with other Countries
Interaction with different Ministries and
executive authorities of the State.
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Chairman/SecretaryRevenueDivision
Member
Inland
Revenue
MemberAdminist
ration
MemberLegal
MemberFATE
Member
Customs
MemberSP&S
MemberTaxpayer
Audit
MemberE&C
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FederalTaxes AdministeredbyFBR
InlandTaxes IncomeTax
SalesTax
FederalExciseDuty
CrossBorderTaxes Customs
Duty
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FBRMission
Enhancethecapability of the taxsystem
tocollectduetaxesthroughapplication
ofmoderntechniques,providing
taxpayerassistanceandbycreatinga
motivated,dedicated,professional
workforce
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FBRValues
Integrity
Teamwork
Fairness
Professionalism
Courtesy
Transparency
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B.
Recent
Tax
Reforms
Introduced
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NeedForReforms
Low Tax : GDP Ratio
Narrow Tax base
Outdated Processes
Corruption & Administrative excesses
Complexity of tax laws and arbitrariness in theirapplication
Relationship between taxpayer and tax collectorlargely adversarial
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FBRTaxReformProgram
To increase revenue
To widen taxpayers base
To simplify tax laws
Taxpayer friendly environment
To develop an honest and efficient taxadministration
Objectives:
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Strategy
PolicyReformsSimplificationofLawsReducingrelianceonwithholdingtaxesElimination
of
Exemptions
EffectiveDisputeResolutionMechanism
ProceduralReformsUniversal
Self
Assessment
ReengineeringofProcessesAutomation
AdministrativeReformsOrganisationofFBRonFunctionalLinesEstablishmentofLTUs/RTOs
ReformedHRM
Process
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SimpleLaws&Procedures(i)
New
simplified
Income
Tax
Law
(ii) NewIncomeTaxRules
(iii)Record
Keeping
Requirements
(iv)RevisedSalesTaxRefundRules
(v)
TaxRates
and
Tariff
reduction
and
rationalization.
(vi)EffectiveDisputeResolutionMechanism
PolicyReform
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UniversalSelfAssessment All income tax returns filed are treated as
assessment orders
No Returns are audited unless selected by the
System or on the basis of specific information
Contact between tax officials and Taxpayersminimized substantially.
ProceduralReforms
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ProceduralReformsContinued
Recordkeeping/maintenance upgraded
through massive IT injection
Electronic Filing rendered mandatory forall corporate taxpayers, AOPs, refundclaimants, salaried individuals with
income exceeding Rs. 500,000, IncomeTax withholding statements and sales taxreturns
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NewOrganizationalStructure
Creation ofInland Revenue Service to handleall inland taxes i.e. Income Tax, General SalesTax, & Federal Excise Duty
Restructuring the top hierarchical structure of
FBR
Induction of support & functional members
AdministrativeReforms
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AdministrativeReformsContinued
Reorganization of the entire tax
administration on functional lines, consistingof 3 Large Taxpayers Units, and 18 Regional
Tax Offices across the country
Taxpayer friendly environment
Minimizing contact between taxpayer and
tax collector
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Integration of all Federal inland taxes i.e.
Income Tax, Sales Tax & Federal Excise Duty
LTUs at Karachi, Lahore, & Islamabad deal with
around 1500 cases of designated large Corporate
Taxpayers
LTUs contribute an estimated revenue of around
70% of total inland revenue annuallyOpen floor layout & and one-desk operation for
the taxpayer in respect of all inland taxes
KeyElementsofLTUs
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TheCollectionEffort:TAXTOGDPRATIOOFPAKISTAN(200001To201011)
(%ofGDP)
YearDirect
Taxes
Indirect
Taxes
Surcharge
/Levy*
Total
Taxes
FBR
Revenue
Shareof
DirectTaxes
200001 2.99 6.89 0.73 10.61 9.42 28.18
200102 3.20 6.41 1.23 10.83 9.11 29.54
200203 3.17 6.94 1.41 11.53 9.57 27.49
2003
04 2.92 6.84 1.09 10.84 9.25 26.94200405 2.72 7.01 0.41 10.14 9.05 26.82
200506 2.82 7.06 0.67 10.54 9.36 26.75
200607 3.85 6.41 0.74 11.00 9.76 35.00
200708 3.79 6.47 0.34 10.60 9.83 35.75
200809 3.46 6.00 0.99 10.44 9.08 33.14
200910 3.66 5.83 0.90 10.39 9.05 35.23
201011 3.33 5.28 0.24 8.85 8.6 38.7
*Onpetroleumproductsandnaturalgas
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MajorTaxIssues
Low
Tax/GDP
RatioRoleofLobbies
SectoralImbalances
UndocumentedEconomy
NarrowTaxbase
TAX TO GDP RATIO!WHY LOW?
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TAXTOGDPRATIO!WHYLOW?
Taxto
GDP
ratio
alarmingly
low
at
9%
of
GDP
DuetoLargeTaxExemptions
~ onCapitalGainson Properties
~ immunityonforeignremittances
~
Withdrawalof
Wealth
Tax
~ WithdrawalofExciseDutiesonConsumer Durables
Dueto
Reduction
in
Tax
Rates
~ MaximumTariffsonImportsdownfrom35%to25%
~ CorporateandPersonalIncomeTaxratesbroughtdown
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TAXTOGDPRATIO!WHYLOW?
DuetoSlackeningofFiscalEffort
~ SelfAssessmentSchemewithoutAuditsin
IncomeTax
and
Sales
Tax
~ NumberofIncomeTaxreturnsfiledatonly2.2million(oneper75persons)
~
Provincialgovernments
continue
to
slacken
fiscaleffortduetohighdependenceontransfers
Dueto
high
variability
in
revenue
from
Surcharges
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ThereareanumberofformalandinformallobbiesinPakistan,whichinfluencepolicyformulationincludingtaxreforms.
Some
of
the
most
influential
lobbies
include: Agriculturists(largelandholders,strongpresencein
parliament)
BusinessLobby(ChambersofCommerceandIndustries,AllPakistan
Textile
Mills
Association,
Overseas
Chamber
of
Commerce,Associationsofwholesaleandretailtraders)
Bankingsector
Stock
Markets
Someexamplesoftheinfluenceontaxpolicyaregivenonnextslide:
RoleofLobbies
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R l f L bbi (C ti d )
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The
Stock
Exchange
lobby
resisted
successfully
to
avoid
taxation
oncapitalgainsuntil201011.CapitalGainsTaxcouldnotbeleviedatthetimewhenstockmarketswereflourishing.
CapitalGains
Tax
on
real
estate
could
not
be
levied
due
to
strongresistancefromtheconcernedinterestgroups
VATcould
not
be
implemented.
Introduction
of
VAT
was
delayedduetostrongoppositionfrombusinesscommunityaswellasfrompoliticalparties
GSTcouldnotbeextendedtowholesaletradeandservicesduetostrongresistancefromtradingcommunity.
RoleofLobbies:(Continued.)
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IMBALANCEDSECTORALDISTRIBUTION
OFTHE
TAX
BURDEN
2009
10
(%)
ShareinGDP
ShareinTaxRevenue
Ratio
Agriculture 22.5 1.2 0.053
Industry 23.5 70.4 2.995
Services(and
others) 54.0 28.4 0.526
Total 100.0 100.0 1.000
Source:
Ministry
of
Finance,
Fiscal
Policy
Statement.
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OutcomeofReforms
Automatedprocesses
(ERS,
STARR,
SMART,VERITAX,RECAPetc.)
Reduceddependence
on
WHT
IncreasingRevenues
Electronic
Filing Infrastructureimprovement
GainingStakeholdersrespect
Transparencyandreductionincorruption
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WayForward
/Proposed
Reforms
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RECENTREFORMS(200809Onwards)
PetroleumLevy
IntroductionofFixedLevyonPetroleumProductswith
largerevenue
yield
of
upto
1%
of
GDP
SalesTax
Phasingoutofexemptionsandzeroratingofdomesticsales
Rationalizationofrateofsalestax
ExciseDuty
AbolitionofAcrosstheBoardSpecialExciseDutyat1%throughFinanceAct2011
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RECENTREFORMS(200809
ONWARDS)
(Continued)DirectTaxes
Taxationof
(Short
Term)
Capital
Gains
on
Shares
ExtensionoftheWithholdingTaxNet(BankCash
Withdrawals,
Air
Travel)
IntroductionofMinimumTaxonTurnover(@1%)
RandomBallotforAuditwithOutsourcingtoprivateAccountingFirms
DetectionofNewTaxPayersthroughthirdparty data
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PROPOSEDREFORMSContinued
Introductiondelayeddueto
~
issueof
collection
by
provinces
of
the
salestaxonservices
~
lobbies(especially
the
trading
community)
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39
CURRENTSTATUS
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