Islamabad: The government does not have a strong strategy to broaden the tax base, which could make it difficult to meet the tax collection target for next year, experts noted on Monday as they put warning against overloading existing taxpayers.
“The government does not appear to have any original ideas for broadening the tax base,” analyst Hussain Haider said during a pre-budget discussion hosted by the Islamabad Policy Institute (IPI), according to a press release.
After collecting over Rs 4 trillion in taxes in the outgoing fiscal year, the government is reportedly planning to set a tax collection target of Rs 5,800 billion for next year. Finance Minister Shaukat Tarin has repeatedly stated that the government will not burden existing taxpayers further. However, experts were skeptical of this claim.
“Tarin’s claim seems unrealistic when viewed in the context of the IMF’s overall program and statements by some of the other officials,” Haider argued. Sakib Sherani, a former member of the Prime Minister’s Economic Advisory Council, observed that tax collection over the previous year was remarkable, but it was not the result of a broadening of the tax base.
He said one of the reasons is that the IMF’s program leaves little room for RBF to focus on other sectors that have been excluded from the tax net.
Sherani estimated that “automatic growth due to tax elasticity and the expected increase in GDP growth” could bring next year’s tax collection to around Rs.5.3 trillion, but going further to meet the government’s target of 5.8 trillion rupees or the IMF’s request to raise 5 rupees. 9 trillion would be very difficult.
Dr Vaqar Ahmed, joint executive director of the Institute for Sustainable Development Policy (SDPI), estimated that the target of 5.8 trillion rupees may not be too long due to the expected resumption of activity. economic, the government’s plan to achieve a growth rate of 4.8% and the possible increase in oil and commodity prices. However, he, too, feared that much of the collection had so far come from indirect taxes, while the government still lagged behind in collecting direct taxes.
“Indirect taxes have implications for the poorest sections of society and the middle class,” he argued. Dr Ahmed also stressed the need to harmonize the tax system and the provincial governments to make their tax mechanism more efficient to dig deeper into the tax bases which are the responsibility of the provinces after the 18th Amendment such as the service sectors, transport and agriculture.
Kamran Nasir, CEO of JS Global Capital, warned that failure to broaden the tax base would put the government in trouble. He said taxes should be sustainable and allow businesses to grow.
He also called for cutting government spending. âThe government’s current spending trend shows that reducing spending is not its priority. The money in many departments is not well spent, âhe said.
Muhammad Asim, director of investments at MCB, insisted on documenting the economy. He praised the government’s strategy for export growth.
Faran Rizvi, an analyst, said the government should learn from the boom-bust cycles of the past and try to make growth more sustainable. He also stressed the need for streamlining taxes.
IPI Executive Director Professor Sajjad Bokhari said that despite the government’s claim to achieve a GDP growth rate of 3.9%, there are questions about the base, quality and sustainability of this growth.
Bokhari said this skepticism stems from the hardships endured by the general public and the business class throughout the year; and above all the absence of institutional reforms that could ensure the sustainability of growth, in addition to making it equitable in the future.