Surging budget deficit

Despite austerity measures in discretionary spending and slashing the Public Sector Development Programme, budget deficit has jumped to Rs. 1.6 trillion equal to 4.2 percent of the total size of the economy. The revenue shortfall has reached to Rs.420 billion and will further increase in the remaining months of the current fiscal year. Vacating its earlier suspension order, the Supreme Court has restored deduction of withholding tax, sales tax and services on mobile phone scratch cards. Government collects revenue of Rs.90 billion during the four quarters of fiscal year from the taxes on prepaid cell phone cards.

The mounting budget deficit will weaken Pakistan position in the upcoming negotiations with the International Monetary Fund (IMF) for bailout package. The country needs the financial assistance worth $ 22 billion from the IMF, the World Bank and Asian Development Bank. The donor agencies have been emphasising for expanding the revenue collection base through direct taxes but successive governments have relied more on indirect taxes to reduce the budget deficits which proved counter productive. Almost 10 months in office the incumbent government has also failed to give tax vision and once again the repeatedly failed recipe of tax amnesty will be tried. It has already hinted at levying new taxes worth Rs. 600 billion. If past experience is any guide it will impact the common man and already compliant tax payers of direct taxes.

In December last year the government directed the Federal board of Revenue (FBR) to initiate a process of netting non-filers but the Inland Revenue Service Department, as usual, avoided a determined drive to net non-filers. Law minister, Dr. FaroughNasim told in a current affairs programme of a private TV channel a week ago that tax laws will be further refined and notices shall be issued to large number of non-filers. The initial exercise in this regard had turned out discouraging. The FBR had identified 3100 high net-worth non-filer individuals and issued notices to them in four batches. But the field officers did not obtain their valid addresses. In the first 148 notices were issued were to the rich people, followed by another 75and 220 notices respectively. In the last batch 2678 people were served with notices directing them to file tax returns. Since the bulk of the addresses were not valid therefore 220 people complied with the terms of notices. The FBR has identified 3000 more non-filers of tax returns, though notices may have not gone out to them. It is pertinent to mention that in the government of President Musharraf the number of Active Tax Payers was 2.4 million which dropped to less than 1.2 million.

Like the previous two governments, the present one is also reluctant to conduct a survey for increasing the number of taxpayers with the support of trade bodies. Similarly, it has not shown spine to take a bold decision about federalizing the agriculture tax as per the recommendation of economic advisory council. Exemption to the income from agriculture provides a conduit for tax evasion from other sources. In order to evade big amounts of income tax, the landlords of Punjab, Sindh and Baluchistan have claimed exemption from FBR by showing the income from industry, business houses, forestry, poultry and diary farming under the source of agriculture. This irregularity had been pointed out in a report released by the Federal Tax Ombudsman. It is time that PTI government to unveil a pragmatic and progressive tax vision with incidence on the rich classes of the country as lowering the exemption limit of income tax to salaried class and burdening over and over the existing taxpayers will hardly bring any improvement in revenue collection.