Tarin assures govt will hold tough negotiations with IMF on withdrawal of PIT exemptions

• "We negotiated hard with the IMF in the past and would be doing it again as the wish list cannot be implemented in totality," Tarin says.
• Pakistan has failed to achieve long-term sustained growth due to low savings rate, yawning gap between exports and imports.
• Tarin says "Pakistan’s tax base was quite low and the country was lagging behind."

ISLAMABAD: The government will hold tough negotiations with the International Monetary Fund (IMF) for withdrawal of Personal Income Tax (PIT) exemptions and bringing changes to its existing slabs, says Federal Minister for Finance and Revenue Shaukat Tarin.

Speaking to the media, after attending a ceremony for announcing Rs53 million worth of prizes among 1,007 winners through balloting on QR Code Receipt generated through the Point of Sale (POS) at the Federal Board of Revenue (FBR) headquarters on Tuesday night, the minister said: "We negotiated hard with the IMF in the past and we would be done again as the wish list cannot be implemented in totality."

The IMF, in its latest review report, had written that the government would kick-start processing of the PIT Bill before the Parliament by end of February 2022. In the past, the IMF asked Islamabad to fetch Rs160 billion through PIT reforms; however, Tarin had refused to implement it on the occasion of the last budget 2021-22.

Earlier, in his address at the POS prizes announcement ceremony, Shaukat Tarin said that Pakistan could not achieve inclusive and long-term growth with the existing low level of tax-to-GDP ratio standing at 10%.

Low saving rate, agricultural productivity — reasons behind lack of sustainable growth

"Pakistan has failed to achieve long-term sustained growth mainly because of three major reasons including low savings rate, the yawning gap between exports and imports and low agriculture productivity," he said and added that for achieving over 6% growth, the government would have to jack up the tax-to-GDP ratio up to 20%.

Highlighting other country's performance, he said that China's tax-to-GDP ratio stood at 40% while Turkey and Thailand also achieved a higher tax-to-GDP ratio, so "Pakistan would have to overcome its fault lines to improve its taxation."

He warned that the government would take action against those who deducted general sales tax (GST) from customers but pocketed the deducted amount. Although, he did not want any kind of harassment but appealed to all retailers to deposit the deducted amount into the national kitty.

He lamented that out of 220 million population, there were only three million return filers and one million filed returns just for the purpose of avoiding charging of full withholding taxes. So there are only two million taxpayers.

'There should be only two major taxes'

Recalling his dialogue with Germany’s finance minister, Tarin said that the German minister had told him that there was no representation without taxation; however, he added that Pakistan’s culture was quite different.

"Pakistan’s tax base was quite low and the country was lagging behind.' he added. There should be only two major taxes, including income tax and the second consumption tax known as GST.

“There is no short cut and there is a need to do away other taxes such as in the shape of different withholding taxes,” he added.

Dwelling upon the GST, he said that the GST should be imposed as Value Added Tax (VAT) where the supply chain starting from manufacturers, wholesalers and retailers should be brought into the tax net. Finally, the tax is charged from customers on the basis of consumption but he admitted that the supply chain was broken halfway. The retailers do not pay the taxes fully.

Growth target of 6-8% cannot be achieved with low tax-to-GDP ratio

Now the FBR, he said, integrated tier-1 retailers with POS machines, and all customers must get integrated genuine receipts from them.

The total sale of retailers stood at Rs20 trillion out of which the captured sale was just 20% of Rs3 to Rs4 trillion only and the country’s tax-to-GDP ratio was just hovering at 10%.

The country’s current expenditures stood at 12 to 14% of GDP, so the tax revenues cannot fulfil even expenditure requirements. 

With the help of non-tax revenues, he said that the country could meet just its current expenditures and the country cannot achieve its development objectives in such a situation. 

The country’s growth target of 6-8% on annual basis cannot be achieved with a low tax-to-GDP ratio, he said and added that the tax-to-GDP ratio would have to be doubled from the existing 10% to 20%.

He said that the FBR was going to cross the Rs6 trillion mark during the current fiscal year but added that the size of the economy also stood at Rs60 trillion.

Originally published in The News