PAKISTAN’S ECONOMIC TIMES
Prime minister presents proposals for expansion of China’s belt and road initiative
Prime Minister Imran Khan has urged world leaders to undertake joint efforts to address impediments in the way of sustainable global growth.
In his address at the 2nd Belt and Road Forum in Beijing on Friday, the prime minister presented five ways to further expand China’s Belt and Road Initiative (BRI).
“Firstly, we must undertake joint efforts to mitigate climate change. In our Khyber Pakhtunkhwa province, we successfully planted a billion trees. I suggest we launch a joint project to plant 100 billion trees over the next two years, so that we can mitigate the effects of climate change for our coming generations,” said PM Imran.
“Second, we should establish a BRI Tourism Corridor to promote people-to-people contacts and inter-cultural understanding. Thirdly, an office of Anti-Corruption Cooperation should be set up to combat the scourge of white-collar crime. White-collar crimes are devastating the world.”
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Govt stated to make road map to boot exports to $30bn
Economic growth is the key to generate employment opportunities, counter inflation and steer economic prosperity, said Pakistan Textile Exporters Association (PTEA) Chairman Khurram Mukhtar.
Speaking at a meeting on Friday, he urged the government to set a road map for the next four years to produce robust economic activity and boost exports to $30 billion in a bid to fulfil prime minister’s vision of economic prosperity.
Terming entrepreneurs and the business community invaluable asset of the country, he pointed out that no meaningful economic development was possible without their involvement, co-operation and active input in formulation of economic policies.
“Government should take all possible initiatives to restore the confidence of businessmen and investors to magnify export growth,” said Mukhtar. “At present, only 100 textile units out of 3,500 are maintaining growth, whereas no level playing field is available for the small and medium enterprises (SME) sector.”
He was of the view that Punjab’s textile export industry had the infrastructure, potential and opportunities to enhance exports by $2 billion and generate 100,000 new jobs within the next two years if an enabling environment was provided to it.
The PTEA chairman underlined the need for serious and well-planned efforts to expand value-addition especially in the textile sector for capturing higher share in regional and international markets.
Presenting recommendation for the economic road map, he stressed for liquidation of stuck up refunds of exporters, which amounted to Rs160 billion in different refund regimes.
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Despite OECD data, FBR fails to raise tax collection
Despite having a treasure trove of information from the Organisation for Economic Cooperation and Development (OECD), the income tax collection with tax authorities’ own efforts remained almost unchanged at 7.6% of total direct taxes in first nine months of the current fiscal year.
The Federal Board of Revenue (FBR) received just Rs74.3 billion or 7.6% of total direct taxes with its own efforts from July through March of this fiscal year, showed official statistics.
In first nine months of the last fiscal year, the FBR had collected Rs68.5 billion or 6.6% of total direct taxes through its own efforts.
The remaining direct taxes were generated through voluntary payments by taxpayers and withholding taxes. An amount of Rs274.2 billion or 28% of the total direct taxes was collected on account of voluntary payments. The biggest chunk – 70.2% of the direct taxes or Rs684.6 billion – was collected because of dozens of withholding taxes.
Overall, the FBR collected a net Rs975 billion in direct taxes from July through March 2018-19, down 5.6% or Rs58 billion over the same period of last fiscal year.
Although the collection through the tax machinery’s efforts increased Rs5.8 billion or 8.5% over the previous year, it did not correspond with the tall claims of going after tax evaders.
Prime Minister lmran Khan had vowed to make life of tax dodgers miserable by going after them. About two months ago, Minister of State for Revenue Hammad Azhar also said Pakistan had received details of 152,000 bank accounts from 29 jurisdictions under the OECD treaty. He revealed that Pakistan had requested 10 more countries for automatic exchange of information.
But results of first nine months of the current fiscal year suggest that the authorities have not been able to make a major impact despite having treasure trove of information.
Sources in the FBR told that weak monitoring of withholding taxes, lack of focus on audit cases and ineffectiveness of intelligence and investigation wing of the Inland Revenue were the reasons behind the negligible share of tax collection through FBR’s own efforts. The directorate general of broadening of tax base was not effectively playing its role.
In addition to the OECD information, the Pakistan Tehreek-e-Insaf (PTI) government had also claimed that it had actionable information against 2.7 million Pakistanis which had been gathered by tracking their lavish lifestyles.
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Pak’s revenue black hole widens to Rs5 trillion
Pakistan’s revenue black hole, which three years ago was Rs3.3 trillion, has further widened to Rs5 trillion or 26 percent (pc) of the size of its economy, according to a new document that the World Bank has prepared to approve a $400 million loan for tax reforms.
The project information document of $1.5 billion worth Pakistan Revenue Mobilization Project states that the government does not need to slap more taxes or increase their rates. It says that the existing taxes have the potential to generate annually Rs10 trillion revenues, which are equal to 26pc of GDP.
However, as of last fiscal year, Pakistan’s tax-to-GDP ratio stood at 13pc of GDP – which is half of the potential that the Washington-based lender has worked out.
Three years ago, the WB and International Monetary Fund had estimated Pakistan’s tax gap at 22.3pc of GDP, which implied a tax revenue gap of more than 11pc of GDP or Rs3.3 trillion. But the latest estimates of the potential are higher by nearly 4pc of GDP.
The WB document claims that Pakistan needs to broaden the tax base instead of burdening the existing taxpayers. However, the IMF’s practical steps are contrary to this advice. The IMF has been pushing Pakistan to make tax efforts equal to 1.7pc of GDP next year that requires at least Rs600 billion additional taxes.
For the current fiscal year, 2018-19, parliament had approved Rs4.4 trillion tax collection target for the Federal Board of Revenue (FBR) but the results of first nine months indicated a shortfall of nearly Rs450 billion.
The WB has worked out tax gap estimates for approval of a $400 million loan that its Board of Directors may approve on May 30th. Out of $400 million, an amount of $320 million will be linked with the achievement of results.
The loan has been planned for bringing improvements in four broader areas. The project information document puts these areas as having a “simple and coherent tax system, control of taxpayer obligations, compliance facilitation, and institutional development.
There is not even one area that needs a foreign loan for bringing improvement. The only thing that is needed to achieve these goals is the political will and installation of competent and professionally sound taxmen at the headquarters.
The WB has shown the total cost of Pakistan Revenue Mobilization Project at $1.5 billion. The remaining $1.1 billion will be contributed by the federal government.
The WB paper stated that a detailed gap analysis, which has been recently completed by it, indicates that Pakistan’s tax revenue potential would reach 26pc of GDP only if tax compliance were to be raised to 75pc, which is a realistic level of compliance.
“This means that the country’s tax authorities are currently capturing only half of this revenue potential, i.e. the gap between actual and potential receipts is 50pc”, according to the lender.
The size of the tax gap varies by tax instrument and by sector. The tax gap in the services sector is estimated at 67pc, which means the federal and provincial governments are collecting only one-third of the potential taxes from the services sector. In the manufacturing sector, the gap is estimated at 46pc.
The WB thinks the methodology that FBR uses to assess tax liabilities for some sectors like the electricity consumption bills for the steel sector is leading to huge tax losses.
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Safeguard mechanism to be part of CPFTA Phase-II
Unlike phase-l of the China-Pakistan Free Trade Agreement (CPFTA), a comprehensive safeguard mechanism has been put in place for phase-ll. The agreement is scheduled to be signed on April 28 in Beijing and is expected to protect the local industry of the country, said Adviser to Prime Minister on Commerce, Textile, and Industry Abdul Razak Dawood.
“There were no safeguard measures in the proper sense in CPFTA-I, now these have been put in place to protect the local industry,” remarked the adviser, who is accompanying the prime minister in his visit to China. Under CPFTA-II, a ‘sensitive list’ comprising 1,700 items has been provided to safeguard the local industry, as export access into the Chinese markets and import protection were hallmarks of the new trade agreement, Dawood told APP.
The safeguard measure would also be utilised to save any industry in case it faces damages, while duties could also be imposed under this mechanism in case balance of payment problems arise, he remarked.
The adviser said that after signing the second phase of CPFTA, Pakistan’s exports to China would increase by $500 million within a few months, while the trade volume would continue to increase in the years to come. Under the CPFTA-II, Pakistan would get market access at par with the Association of South East Asian Nations (ASEAN).
The PM aide said that under the FTA, Pakistan would get duty-free access on 313 tariff lines, which will cover around $40 billion Chinese imports.
However, he said, signing CPFTA with China was not sufficient to exploit the trade potential between both side, adding that there was a need to take more measures to promote bilateral trade and economic relations, he added.
Through modern digital ways, electronic data would also be exchanged for stopping under-invoicing under CPFTA, Dawood disclosed. He said that since Pakistan provided a favourable business environment, the government wanted Chinese investors to invest in different sectors and export their products to world markets, including potential African markets.