In its election manifesto, the Pakistan Tehreek-e-Insaf (PTI) had promised to introduce sweeping tax reforms to broaden the tax net in the country, but the mini-budget, presented yesterday by the PTI government, does not reflect those promises.
“The PTI will reform the FBR and increase the tax net through a robust tax policy, efficient tax administration structure and effective enforcement mechanism,” reads the manifesto on the party website, adding the party will increase direct taxes to address income inequality.
However, while presenting amendments to the budget for fiscal year 2018-2019 in the National Assembly, Finance Minister Asad Umar reversed some of the tax reforms introduced by the last government.
In a major relief to non-filers of tax returns, the minister announced to remove the bar on them on buying expensive property in Pakistan.
In previous budget, non-filers were barred from buying property worth more than Rs4mn in a bid to encourage them to file their tax returns annually as per the law.
Also in its last budget, the previous PML-N government had restricted non-filers from buying new motor vehicles if their names did not feature in the active taxpayers’ list (ATL) of the FBR.
That restriction too was removed by the PTI. Pakistani law requires all its citizens, whose taxable income for the year exceeds Rs400,000, to file income tax returns.
However out of over 200mn population, only 1.46mn people file their returns as per the FBR data.
Experts believe the latest PTI concessions will hurt the efforts to increase number of tax filers and document economy.
Former finance minister Miftah Ismail, who presented the last PML-N budget, lashed out at the PTI-introduced changes. “In Purana Pakistan, the PTI used to hate indirect taxes and considered them regressive.
In Naya Pakistan, the PTI has taken a U-turn. The PTI government is trying to impose Rs90bn in new indirect taxes.
Taxon mein Tabdeeli aa gayi heh (Change has come in terms of taxes),” he tweeted.
He expressed disappointment over the move and claimed that the PML-N government was under intense pressure from auto companies and land developers but it didn’t budge. “But today I am sorry to say that automakers have won and Pakistani taxpayers lost,” Miftah tweeted.
However, yesterday, Asad Umar did announce one punishment for non-filers who will now be subjected to 0.6% withholding tax on banking transactions.
While defending the decision to remove the bar on buying expensive property for non-filers, the minister said “a lot of Pakistanis living abroad had complained that the measure prevented them from buying property in Pakistan even though they were not even obligated to file taxes in the country.”
However financial experts believe the government could have given property-related exemption to only overseas Pakistanis instead of giving relief to all non-tax payers. The PTI manifesto acknowledges that Pakistan’s current tax to GDP ratio is significantly less “than the ratio required to sustain our growing fiscal expenditure and to pay-off the massive national debt accumulated over the last decade.”
“Further to which, our tax policies have consistently been suboptimal and as a result have led to decrease in the tax net, disproportionately higher share of indirect taxes (60%) in tax revenue, which adds to income inequality and high average tax rate of 31% for businesses and corporations.”
In its manifesto, the PTI had made the following promise.