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Tax system on the brink of collapse, Senate told

Tax system on the brink of collapse, Senate told

ISLAMABAD: Pakistan’s tax-collecting system is on the verge of collapse, experts warned on Tuesday, and asked the government to take urgent measures to build public confidence in the Federal Board of Revenue (FBR).

Speaking as special invitees to the Senate Committee on Finance, former adviser to the prime minister on finance Dr Salman Shah and former principal adviser to the Ministry of Finance Sakib Sherani presented a bleak picture of the taxation mechanism.

Chairman of the committee, Senator Saleem Mandviwalla, invited the experts who represent a think tank named Research and Advocacy for Tax and Allied Reforms (RAFTAAR).

Mr Sherani in his briefing to the committee said, “Pakistan’s tax collection system was on the verge of collapse, and that was not only due to faulty system marred with loopholes and corruption but the most serious issue was lack of any direction for improving tax collection mechanism.”

His brief presentation was taken seriously by the senators and even those belonging to the treasury side did not object or made any query to interrupt Mr Sherani. He said that low tax collection was so mismanaged that there was one tax filer in Pakistan per 375 citizens, whereas the ratio was 4:1 in Japan.

According to a presentation by RAFTAAR, around 0.24 per cent Pakistanis were income tax filers, which accounts to 534,000 citizens only. Moreover, out of an estimated 450,000 doctors and 500,000 lawyers in the country, only 14,000 and 5,000 file their tax returns.

He said that due to low tax collection the country was facing low funding problem, leading to higher borrowings by the government.

“This means that we are mortgaging our future,” he added, “The situation has already started to choke development activities.”

He said that one major flaw in the system was that the collection was based on source of income and not based on a threshold level.

The Senate committee was informed that industries and service sectors were contributing to around 98pc tax collection where the contribution from wholesale, retail and agriculture sectors were nominal.

FBR officials countered the presentation by RAFTAAR, saying the growth in direct tax collections was highest in Pakistan, surpassing Turkey, India and Malaysia.

Senator Ilyas Bilour said people did not trust the FBR, and that was why the traders did not opt for the new tax amnesty scheme. “The attitude of FBR and the harassments we face there is discouraging for new filers. But it was deliberate because this way the officials can squeeze the tax payers well.” He added.

However, responding to a query by the committee’s chairman, Dr Salman Shah said Pakistan needed to develop tax culture that is simple, credible, fair and free of political interference.

The committee acknowledged with the suggestion that all legal loopholes to whiten money needed to be closed.

“We should request Senate Chairman Raza Rabbani to establish a special committee to discuss these taxation issues,” Senator Kamil Ali Agha said. The suggestion was accepted unanimously by the members belonging to all sides.

Courtesy : Dawn News



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