PBC Supports FBR’s Proposal to Limit Cash Withdrawals For Non-Filers

The Pakistan Business Council (PBC) has consistently advocated for equitable and predictable fiscal policy developed independently of the FBR and for its effective enforcement by the FBR.

Combining policy with tax collection leads to short-term revenue-seeking measures that undermine the economy’s long-term growth. In a tweet, PBC said a higher tax-to-GDP ratio can be achieved through:

  1. a fiscal policy that promotes the growth of investment and business, thereby enhancing taxable revenue; and
  2. broadening the tax base by including the untaxed and under-taxed sectors of the economy

Pending the separation of policy from collection, PBC said it had a detailed discussion yesterday with the Chairman FBR on the plans to transform FBR’s enforcement capability. PBC, in principle, supports the proposals and assured the Chairman of its full cooperation. It recommended the following to ensure that the transformation plan yields positive results:

The focus on differentiation between filers of small and large income and assets is valid, as is the denial of certain privileges to those who do not declare their income and assets. At the same time, FBR must maintain transparency in its work, particularly through PRAL or other means, to mine databases to expand the tax net. Denial of benefits and penal withholding taxes on “non-filers” have not worked so far to expand the tax base.

FBR should take the government and public into confidence on the effect of some of its proposals on choking the informal economy, particularly employment. That said, there is no gain without some pain, and there should be no surprises that undermine transformation. “It needs to be done! We recommended disconnecting the utility connections of businesses not registered for sales tax and disallowing the use of credit and debit cards by “non-filers” for expenditure abroad. These and other measures that the FBR envisages can be phased in rather than be implemented suddenly,” PBC added.

PBC pointed out the formal sector’s challenges in performing KYC on all suppliers and customers and were assured of the FBR’s cooperation in resolving difficulties. It also raised the issue of the denial of input sales tax offset despite ensuring that the transactions were with businesses registered with the FBR. “We were told that a “Red, Yellow, Green” classification of registered businesses would be developed to seek an appropriate level of KYC by the formal sector,” it said.

“Subject to clearance by the Law division, we support FBR’s proposal to limit cash withdrawals and welcome the decision not to restrict cash deposits in banks. We requested the FBR to allow time for labor and daily paid employees to open Assan or other bank accounts to which their wages could be transferred. Additionally, we suggested that non-cash transactions be incentivized with the agreement of the provinces,” it said.

The council discussed the plans to use technology to trace the movement of goods and recommended that pilots be conducted to learn and improve its effectiveness.

PBC urged the FBR to proceed with caution and avoid overburdening the formal sector, especially the large taxpayers, with additional audits. Instead, it should focus its scarce resources on those not presently in the tax net.

PBC recommended gradually tightening the compliance requirements to encourage POS integration in retail.

“We support the FBR’s plans to strengthen border controls to stem smuggling. We have for some time been recommending that Exchange of Data Interface (EDI) agreements be secured with the main trading partners to prevent mis-invoicing. We also reminded the FBR of our proposal to seek recovery of all Customs Duty, income, and sales taxes on goods transiting through Pakistan to Afghanistan under the transit trade arrangements. These should be transferred to the Afghan government on goods leaving Pakistan. We also suggested the use of fuel marking dyes for imported fuel to identify the sale of smuggled fuel,” it added.

The quality of implementation of FBR’s plans will determine the success of its transformation. Strong political will is essential. The formal sector must also cooperate.

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