Tax exemptions cause Rs361bn annual losses

ISLAMABAD: The government should impose inheritance tax to broaden the skewed tax base as influential are getting exemptions in direct taxes to the tune of Rs361 billion a year, economists said on Tuesday.

“There is need to impose inheritance tax [paid on inherited money or property] to broaden the tax base,” ex-finance minister Dr Hafiz A Pasha proposed in his presentation during the PIDE conference. The presentation was made by Sakib Sherani, former economic advisor, on behalf of Dr Pasha.

In his presentation, Dr Pasha argued that the government had burdened poor for fiscal adjustments and there was need to abolish tax exemption and impose inheritance tax through which the government could generate Rs200 billion revenues a year.

The tax expenditures for direct taxes stood at Rs361 billion, including Rs63 billion exemptions for IPPs (independent power producers), unrealised capital gains tax worth Rs70 billion, provisioning of banks to the tune of Rs24 billion, depreciation allowance of Rs64 billion, and other incentives of Rs34 billion. The low agriculture income tax is causing a loss of Rs40 billion every year to national exchequer.

The tax evasion is increasing as the number of return filers has decreased from 0.8 million. Out of these return filers, 40 percent have shown nil income in the last fiscal year. Around one percent giant companies paid 80 percent of the total collected corporate tax.

There is skewed tax base as the major revenue spinners are oil and gas sector, power companies and corporate sector.

Sherani said the spending of the government is influential-centric. “I attended several ECC (economic coordination committee) meetings as economic advisor. Poverty was never discussed; every time the issue of reducing car prices came under discussion,” he said.

Sherani alleged the burden of adjustments on advice of IFIs (international finance institutions) fall on poor. Wheat support price increases when prices of the commodity decreases in international market. It is an established fact, proven through empirical evidence that the support price largely benefit 30 percent big land owners who are sitting in parliament and other power corridors.

Answering a query by participant, Sherani said that he had become part of the government as a technocrat but accepted that they could not make any difference. However, he said this kind of governance structure would be unsustainable and reforms would have to be introduced.

Former Chief Economist Dr Pervez Tahir said the privatisation programme remained unable to achieve any of its objectives in terms of reducing debt to GDP ratio, poverty alleviation, promoting investments and creating jobs. “If you want to exclude [the masses] then continue with privatisation,” he added.

Federal Secretary Finance Dr Waqar Masood said the access of food is not a problem in Pakistan, except in few areas such as Tharparkar.

Dr Masood also explained the burden of fiscal adjustments does not fall on poor as the government protects users of 200 units from any raise of electricity tariff.

“We have not raised power tariff for users of 200 units since the beginning of 2012,” he added. Initially, there were 50 units known as life line consumers, which were increased to 200 units as 70 percent consumers fell in this category.

Through fiscal adjustments for bringing down budget deficit from 8.2 percent of GDP to 4.8 percent for the ongoing fiscal year, Dr Masood said that it was mainly done through raise in electricity tariff.

He said the debt to GDP ratio was brought down after implementing privatisation programme. Citing an example of Pakistan Steel Mills, he said this company had a surplus of Rs25 billion when its privatisation was stopped by the Supreme Court of Pakistan. The cash-bleeding PSM’s losses has hit Rs120 billion.

Source: The NEWS

Related Informations