New Delhi: The International Monetary Fund (IMF) and Pakistan’s Federal Board of Revenue (FBR) have ignored proposals outlined in Tax Reforms: Agenda for Self-Sustainability, which demonstrates the potential to collect Rs 30 trillion at the federal level alone, enabling Pakistan to overcome its monstrous fiscal deficit, eliminate dependence on fresh loans, achieve rapid economic growth, and provide social services to all citizens, according to an article in Lahore-based Friday Times.
It points out that the way forward lies in the determination of fair taxation rights under the Constitution between the federation and federating units.
The need of the hour is to allow provinces to raise adequate resources, which would also help address the overall fiscal deficit faced by the federal government.
For example, Balochistan should receive the “net proceeds” of excise duty on natural gas, and Khyber Pakhtunkhwa on electricity, as envisaged in Article 161(1)(a) and (b) of the Constitution – something that is presently not being implemented.
Their current shares in sales tax under the 7th NFC Award are as low as 9 per cent and 15 per cent, respectively. Despite their rich natural resources – oil, gas, and electricity – their low population results in meagre shares of the revenues generated from the goods they produce. Sindh faces similar issues, the article states.
In view of Article 167(4), the role of the National Economic Council (NEC) has become critically important, yet this has not been realised by either the Centre or the provinces. Planning in the aftermath of the 18th Amendment should have been federalised rather than centralised. The 18th Amendment redefined the NEC on the pattern of the Council of Common Interests (CCI). The NEC forms part of Chapter 3 of the Constitution, titled “Special Provisions”.
After the 18th Amendment, the right to levy wealth tax, capital gains tax on immovable property, gift tax, inheritance tax, etc., rests with the provinces. However, they are unwilling to impose these taxes on the rich and powerful. This lack of political will exists at both the federal and provincial levels.
The paltry collection of agricultural income tax – less than Rs 3 billion by all provinces and the Centre combined in fiscal year 2024-25 – is highly lamentable, the article observes.
The way forward to achieve and sustain fiscal consolidation and ensure ease of business is a unified sales tax on goods and services, as practised in many federations, under a low rate (say 10 per cent). This unified sales tax should be collected by a federalised National Tax Authority with representation from both the federation and the federating units.
It is also imperative that further constitutional amendments be made, following debate and consensus, to assign the right to levy tax on all kinds of income – including agricultural income – to the federal government.
The provincial share of agricultural income tax should be 100 per cent, as the NTA would be a federalised agency, with its expenditure met from revenues collected on a pro-rata basis.
These measures alone can reduce the fiscal deficit at the national level and are the only viable path to achieving and sustaining fiscal stabilisation in Pakistan. However, this can only be realised if all tax collection agencies at federal and provincial levels are reformed and ultimately merged into a single National Tax Authority, staffed by officers of the All Pakistan Unified Tax Service (APUTS).
The NTA would collect taxes at all levels and distribute them according to constitutional provisions. It would also disburse benefits such as pensions, social security, food stamps, and income support.
Linking databases of various institutions with the NTA through complete digitisation would be a major step towards e-government, which is currently almost non-existent, though initial efforts are now underway.
The structure and functioning of the NTA should be discussed and finalised under the Council of Common Interests, with oversight placed under the National Economic Council. It is high time that the federal and provincial governments – including representatives of Pakistan-occupied-Kashmir and Gilgit-Baltistan – sit together under the umbrella of the Ministry of Inter-Provincial Coordination.
They must deliberate on the federalisation of economic planning, as mandated by the Constitution, pool available resources under APUTS, and achieve fiscal consolidation to make Pakistan a prosperous country with inclusive development and an attractive destination for domestic and foreign investment.
Clearly, incumbent federal and provincial governments and vested interests will not implement these reforms unless civil society and the media launch an effective campaign.
There has been much talk of a “charter of economy” in Pakistan, but none of the political parties or stakeholders have ever seriously considered the true spirit of the 18th Amendment, even after more than fifteen years, the article laments.
(IANS)
