Grey areas in tax structure

THE newly appointed FBR chief, Ahmad Waqar, has directed technical wings of the Board to identify grey areas in the country’s taxation structure so that the present low tax-to-GDP ratio could be improved. He has urged tax officials to gear up efforts to improve the tax-to-GDP ratio, which at present is one of the lowest in the region. He has vowed to initiate every possible measure, including improvements in the existing automated system, which will have to be taken to remove all types of snags that have kept the tax-GDP ratio low. The FBR chief has emphasised the need for the taxation workforce to adhere to strict professional discipline to enhance its performance. He believes that although the revenue collection target of Rs 1,250 billion set for the current fiscal year is a huge challenge, he is very well aware of the difficulties that have to be surmounted. It should be mentioned here, however, that reforms in tax administration, initiated about five years ago with a $150 million World Bank grant, have not produced any meaningful impact, as the tax-GDP ratio continues to be below double digits, which is way below the ratio set by IMF for low-income countries. According to IMF statistics, high-income countries have to maintain a ratio of 40 percent, while the ratio for middle-income countries is around 25 percent. A State Bank report some years ago had attributed unfavourable tax compliance in the country to a string of negative perceptions about the government, including corruption, wastefulness in resource utilisation, and lack of horizontal and vertical equity, as well as absence of transparency. The tax-GDP ratio in Pakistan is low by international standards, with at least 4 percent point (up to Rs 350 billion) in comparison to the competing economies of the region. One of the causes of this phenomenon is that along with agriculture, the services sector is a major non-compliant area.
Further, the sub-sectors whose tax contribution does not match with their contribution to the GDP include wholesale and retail sectors aside from transport, construction, hotels/restaurants and commission agents. According to FBR estimates, the contribution of most of the sectors like banking, insurance and telecommunication is also below their potential. Livestock (including poultry industry, animal farming, milk, meat etc) is contributing about 50 percent of the value addition in agriculture, although it has virtually no share in taxes. Likewise, tax contribution of orchards and horticulture is negligible. The basic structure of tax compliance and tax administration in the country has remained a lopsided affair while the failure to mobilise adequate revenue has particularly hurt development projects, with adverse implications for efficient utilisation of resources. In fact, a weak tax administration in the country is largely to blame for persistent reduction in tax-GDP ratio and generally sluggish activity. Many analysts believe that our economy needs more public resources to sustain momentum of growth, increase spending on essential operations and maintenance, provision of basic social services, and public investment in high-priority projects. And for this purpose, we will have to raise the tax-GDP ratio. The main “grey” areas in the present tax administration include discretionary concessions and exemptions. These distortions need to be identified and removed without further loss of time. FBR should extend GST and income tax base to more taxpayers and increase revenue collection of provincial agricultural tax by curtailing exemptions. As untaxed wealth creates monetary distortions that vitiate the economy, Ahmad Waqar’s first act as the FBR chief is needed to be aimed at purging the taxation structure of all such fundamental and fatal flaws.

Justice for Bosnia

RADOVAN Karadzic has finally been put in the dock at the UN war crimes tribunal in The Hague. The man, known as the Butcher of the Balkans, for his role in sending more than 200,000 people to death, most of them Bosnian Muslims, evaded the long arm of the law for 11 years thanks to the protection offered by the Serbian authorities and extremists. Karadzic is charged with 11 counts, including genocide and crimes against humanity for the 43-month-long siege of Sarajevo and the 1995 massacre of some 8,000 Muslims at Srebrenica, the worst atrocities in Europe since World War II. What Karadzic with his other comrades like former Serbian president Slobodan Milosevic unleashed on the besieged Bosnian Muslim population for nearly four years will long be remembered as the most disgraceful episode in the post World War II history. Europe, the United States, the UN and rest of the civilised world rubbed hands in helplessness as the Serbian terrorists went on the rampage turning the whole of the Balkans into a large war zone. Finally, when the US and EU states stirred out of their slumber to rein in the killers, it had been too late. The silence and inaction on the part of the world community had claimed more than 200,000 innocent lives, not to mention the mass rape of Bosnian women and total destruction of Sarajevo and Bosnia Herzegovina.
No one perhaps will ever know how many innocents paid with their lives and honour for their religious or ethnic identity. The Bosnian and Serbian authorities continue to stumble on mass graves to this day. One shudders to think what would have happened if the US, EU and UN, under pressure from the Muslim countries like UAE, had not moved to stop further bloodshed. Who knows how many more Srebrenicas we would be mourning today, if the world had not eventually moved to rein in the mass murderers like Karadzic? If the international community had been first guilty of failure to protect the people of Bosnia Herzegovina and Kosovo, it compounded it by failing to bring Karadzic, Milosevic and company to justice all these years. Thirteen years after one of the most well planned and executed genocides in history, its perpetrators are yet to pay for their crimes. The UN tribunal for Yugoslavia has not so far succeeded in convicting even a single one of them. Milosevic, Karadzic’s mentor and one of the main architects of the Balkan genocide, died in his cell at The Hague after a long and inconclusive trial. Which is why we so hope the UN tribunal will this time around do a better job of bringing justice to the Bosnian victims.

—Khaleej Times