In this regard, the PBC submitted recommendations on the FBR’s restructuring on Sunday.
The restructuring plans proposed to retain the policy role within the Finance Ministry, but the deficit-bridging measures will continue to influence policies. The PBC therefore suggested that the policy role be under the ambit of the Ministry of Planning to align fiscal policy with long-term industrial and trading policies within the framework of 5-year plans.
The PBC suggested that separating fiscal policy from tax collection has been a fundamental element of PBC’s advocacy. In the present structure, which combines the two roles, often knee-jerk, short-term, revenue-seeking changes are made which undermine investor confidence. Worse still, these revenue-seeking measures target those that are already disproportionately burdened, thwarting the growth of business and the economy.
There are plans to deploy AI and technology to broaden the tax base. However, this will require a significant transformation of talent.
PBC strongly recommended that the taxpayers (stakeholders) should be included in the proposed Policy Board under the restructuring plan of the Federal Board of Revenue (FBR).
According to the recommendations of the PBC on the FBR’s restructuring on Sunday, the PBC has noted with concern that the Policy Board will not have taxpayer representation and that the primary goal of policies will be to raise tax revenues. The PBC strongly believed that policies should drive the growth of business, from which higher taxes can flow to the exchequer. Thus, wealth creation, capital accumulation, consolidation through the formation of groups, investment, employment, exports, import substitution, and building resilience to climate change should be the drivers of tax policies and the goal of the Policy Board. The inclusion of taxpayer representation on the Policy Board will enrich its output. Taxpayers are important stakeholders that should not be ignored.
Furthermore, tax targets should encourage a broadening of the tax base instead of merely the total revenue raised.
The policy measures to support the long-term growth of business, economy, and tax revenue:
- Provide long-term predictability and consistency to promote investment. Policy changes should not affect those who invest based on a previous policy;
- Make revenue from new taxpayers the primary target to promote the broadening of the tax base;
- Exclude refundable taxes and advance tax when assessing performance against tax collection targets;
- Remove the disproportionate burden of taxes on the few taxpayers, in particular, withdraw super tax, which was billed as a “one-time” tax when imposed;
- Tax policies should support the growth and competitiveness of business and be aligned with long-term industrial and tax policies;
- Taxes and tax processes should be simple, with minimum personal interface and harassment;
- Encourage listing and formation of groups by eliminating double taxation of inter-company dividends and facilitating surrender of tax losses;
- Establish a clear order of priorities to promote formalization and governance. The order of priorities should be: First, listed companies, followed by non-listed/private companies, then the association of persons and individuals in business;
- Tax profit, not turnover;
- Ensure in all cases, that the formal sector enjoys more favourable taxation than the informal sector;
- Support the National Tariff Policy to deploy tariffs as an instrument of trade policy rather than revenue generation, maintain vertical consistency through cascading tariff structures, increasing tariffs with stages of production, and provide time-bound strategic protection to the domestic industry during the infancy phase;
- Stop the over-taxation of cellular and internet connectivity, which is thwarting the growth of the knowledge economy;
- Reduce the number of withholding taxes;
- Tax rates should be competitive with regional countries;
- Reduce the incidence of tax on salaried employees to stem brain drain which is affecting the growth of the formal sector;
- Remove obstacles to offset tax refunds with other tax liabilities;
- Wash exports clean of all tax levies in the supply chain;
- Reduce incentive to smuggle by reviewing duties/levies and strengthening border controls;
- Exchange import and export data with trading partners through Electronic Data Interchange to minimize mis-invoicing;
- Use technology for customs inspection to thwart mis-declaration;
- Incentivize businesses to develop climate resilience;
- Discourage the use of cash by incentivizing the use of cards and digital payments;
- Restore investment tax credits on plant, machinery, and industrial buildings;
- Remove turnover tax during tax holiday periods, especially for SEZ enterprises;
- Restore the pass-through tax treatment to encourage private equity and venture capital investment;
- Provinces should maximize revenue from taxes on agriculture and urban property. The federal government can facilitate the collection of tax on agriculture;
- Move towards a National Tax Authority to address fragmentation and reduce taxpayers’ burden of multiple returns.