Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
FISCAL REFORMS IN PAKISTAN* By Dr. Hafiz A. Pasha** * Prepared for the Workshop on South Asia Tax Systems, 8-9 August 2010, Singapore. ** Dr. Pasha is Chairman of the Revenue Advisory Council of the Federal Board of Revenue (FBR). SOME SALIENT FEATURES OF PAKISTAN’S TAX SYSTEM A. FEDERAL Income Tax • Heavy Reliance (53%) on Withholding/Presumptive Taxes • Progressive Personal Income Tax (max rate: 20-25%) • Corporate Income Tax (35% rate) • Universal Self-Assessment Scheme • Advance Tax Regime General Sales Tax • On Goods only • VAT features • Zero Rating, also of domestic sales of exporters • Standard Rate of 17% • Exemptions to basic food items, agricultural inputs, medicines, newsprint. SOME SALIENT FEATURES OF PAKISTAN’S TAX SYSTEM Custom Duty • Cascaded Tariff Structure (max rate: 25%; six slabs) • Tariff Peaks in Automobiles and other luxury goods • Share of Dutiable Imports (51%) Excise Duties • on few industries like cigarettes, beverages and cement • on Services in VAT mode • 1% Excise Duty across-the-board on manufacturing and imports PROVINCIAL Taxes • AIT, Land Revenue, Stamp Duty, Motor Vehicle Tax, Property Tax, Excises • Sales Tax on Services TAX-TO-GDP RATIO OF PAKISTAN 2000-01 To 2009-10 (% of GDP) Direct Taxes Indirect Taxes Surcharge /Levy* Total Taxes FBR Revenue Share of Direct Taxes 2000-01 2.99 6.89 0.73 10.61 9.42 28.18 2001-02 3.20 6.41 1.23 10.83 9.11 29.54 2002-03 3.17 6.94 1.41 11.53 9.57 27.49 2003-04 2.92 6.84 1.09 10.84 9.25 26.94 2004-05 2.72 7.01 0.41 10.14 9.05 26.82 2005-06 2.82 7.06 0.67 10.54 9.36 26.75 2006-07 3.85 6.41 0.74 11.00 9.76 35.00 2007-08 3.79 6.47 0.34 10.60 9.83 35.75 2008-09 3.46 6.00 0.99 10.44 9.08 33.14 2009-10 3.66 5.83 0.90 10.39 9.05 35.23 Year * On petroleum products and natural gas Source: Ministry of Finance, Government of Pakistan. THE IMBALANCED SECTORAL DISTRIBUTION OF THE TAX BURDEN 2004-05 (%) Share in GDP Share in Tax Revenue Ratio Agriculture 22.5 1.2 0.053 Industry 23.5 70.4 2.995 Services 54.0 28.4 0.526 Total 100.0 100.0 1.000 Source: Ministry of Finance, Fiscal Policy Statement. WHY THE TAX-TO-GDP RATIO DID NOT RISE DURING THE PERIOD OF FAST GROWTH, 2003-04 To 2006-07? • Tax-to-GDP ratio remained, more or less, constant at 11% of GDP • Due to Large Tax Exemptions ~ on Capital Gains on Shares and Properties ~ Withdrawal of Wealth Tax ~ Withdrawal of Excise Duties on Consumer Durables • Due to Reduction in Tax Rates ~ Maximum Tariffs on Imports down from 35% to 25% ~ Corporate and Personal Income Tax rates brought down WHY THE TAX-TO-GDP RATIO DID NOT RISE? (Contd.) • Due to Slackening of Fiscal Effort ~ Self-Assessment Scheme without Audits in Income Tax and Sales Tax ~ Number of Income Tax returns filed at only 2.2 million (one per 75 persons) ~ Provincial governments continue to slacken fiscal effort due to high dependence on transfers • Due to high variability in revenue from Surcharges The Government essentially followed supply-side economics to stimulate growth. Growth did rise but not enough to raise the tax-to-GDP ratio. RECENT REFORMS (2008-09 ONWARDS) Carbon Tax • Introduction of Fixed Levy on Petroleum Products as ‘Carbon Tax’ with large revenue yield of over Rs 110 billion ($1.3 billion) Direct Taxes • Taxation of (Short Term) Capital Gains on Shares • Extension of the Withholding Tax Net (Bank Cash Withdrawals, Air Travel) • Introduction of Minimum Tax on Turnover (of 1%) • Random Ballot for Audit with Outsourcing to private Accounting Firms • Detection of New Tax Payers through Collateral Evidence Sales Tax • Enhancement in Rate from 15% to 17% Excise Duty • Introduction of Across-the-Board Special Excise Duty at 1% PROPOSED REFORMS Introduction of Comprehensive VAT (or reformed GST) • Objective is to broaden tax base and reduce tax rate (17% 15%) • Elimination of exemptions on goods, except basic foodstuffs and life-saving drugs, could generate ¼% of GDP • Enhanced coverage of services (excluding education and health) could increase tax revenues in the medium term by 1½ % of GDP • Reduction in tax burden on industry • Introduction delayed till 1st October 2010 due to ~ issue of collection by provinces of the sales tax on services ~ lobbies (especially the trading community) PROPOSED REFORMS Provincial Taxes Areas of focus: ~ Capital Gains Tax on Property ~ Urban Immovable Property Tax ~ Agricultural Income Tax • The target in the on-going IMF Program is to raise the tax-toGDP ratio by 3½ percentage points by 2012-13. Thank You.