Pakistan’s Finance Minister, Shaukat Tarin, has said that better tax collection and a widening of the tax base are the only ways for the country to lessen its dependence on donor agencies.
Self-reliance is the only way forward for Pakistan to achieve economic stability, he argued in a keynote address at the recent Conference on Value Added Tax arranged by the Federal Board of Revenue (FBR). The International Monetary Fund (IMF), in particular, has been pushing Pakistan to move towards the implementation of a VAT tax regime from next year.
Tarin added that Pakistan relied heavily on taxes as the major source of government revenues, and the government’s strategy could only be achieved through the creation and maintenance of an efficient taxation system which conformed to the best international practices in revenue collection.
He went on to state that the country had begun to modernise its taxation structure through the Tax Administrative Reforms Programme, which is aimed at achieving greater efficiency and productivity in tax collecting and at tapping new tax resources.
The Minister admitted there were challenges in generating additional indigenous revenues solely through better tax collection. It also required, he stated, an increase in the tax base.
While Pakistan’s tax base includes a wide range of goods, he said, the services sector is largely out of the tax net. He suggested that it is time that the country’s tax exemptions, and zero-rated items are revisited .
The Finance Minister also went on to observe that the replacement of the sales tax with VAT could be considered as an effective tool for such a widening of the tax base and a means of equitable taxation. However, the enforcement of any such tax on could not be adequately done without the necessary tax collecting procedures, which needed to be thoroughly researched and properly documented by the tax authorities, he cautioned.
He cited the example of Sri Lanka, which at a 15% VAT, had been able to increase its tax-to-GDP ratio by 7%, and suggested that if Pakistan could increase its tax-to-GDP ratio by 4% through the implementation of VAT, it would bring bridging the fiscal deficit significantly closer.
FBR Chairman, Sohail Ahmad, in his address to the conference, highlighted the steps already taken by FBR to generate more tax revenue through significant reforms, re-structuring and a re-engineering of its business processes which, he said, could also be useful for the implementation of VAT.
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