BUDGET PROPOSALS

2015-16
Presentation by
Naeem Akhtar Sheikh
Chairman Committee on Taxation

1
 Tax to GDP Ratio Over the Years
2

Year Ratio

2006-7 10.92%

2007-8 10.56%

2008-9 10.44%

2009-10 10.20%

2010-11 9.2%

2011-12 10.1%

2012-13 11.1%

2013-14 10.5%

2
 Tax to GDP Ratio - Comparison
p 3

Countries Ratio

Pakistan 10.5%

India 17.7%

Sri Lanka 15.3%

Thailand 17.0%

Philippines 14.4%

Turkey 32.5%

South Korea 26.8%

3
 Target
g Tax to GDP Ratio 4

Minimum Level Set By UN as a

Millennium Development Goal 17%

OECD average GDP to tax ratio

i 35%

4
 Whyy Are we Failing?
g 5

Undocumented Economy
Smuggling
gg g and Porous Borders
Large Informal Sector
Small Tax Base
Complicated and inequitable Fiscal Laws
Socio
S i Economic
E i andd Institutional
I tit ti l Factors
F t
Governance and Administrative Capacity

5
 Whyy are we Failing?
g 6

A new research has identified a range of socio economic and

institutional factors that may influence people willing
willing'ss to pay taxes.

Institutional Factors
Trust In Government
Public Perception
Support for Democracy

Socio Economic
Faith or Religious identity
Gender
Education attainment
Economic Status
Economic Problem

6
 Confidence In Government 7

Turkey India Thailand Philippines Pakistan

A Great 24 7%
24.7% 22 2%
22.2% 15 8%
15.8% 12 4%
12.4% 8%
Deal
Quite a Lot 34.2% 32.0% 35.3% 45.3% 27.8%

58.9% 54.2% 51.1% 57.7% 35.8%

7
 Confidence In Civil Service 8

Turkey India Thailand Philippines Pakistan

A Great 14 1%
14.1% 33 0%
33.0% 17 9%
17.9% 16 3%
16.3% 9 4%
9.4%
Deal
Quite a Lot 43.3% 35.7% 39.0% 49.5% 27.9%

57.4% 68.7% 56.9% 65.8% 37.3%

8
 Confidence In Court System
y 9

Turkey India Thailand Philippines Pakistan

A Great 28 8%
28.8% 32 5%
32.5% 36 11%
36.11% 21 9%
21.9% 13 5%
13.5%
Deal
Quite a Lot 39.4% 36.9% 35.7% 43.9% 32.3%

68.2% 69.4% 71.8% 65.8% 45.8%

9
 Willingness
g to Fight
g For Country
y 10

Turkey India Thailand Philippines Pakistan

Yes 77.5% 68.6% 82.2% 82.5% 88.2%

No 13.0% 30.3% 10.1% 17.2% 9.8%

10
 Increasingg Tax Payers
y Compliance
p 11

REVENUE AUTHORITY
The primary goal of a revenue authority is to collect the
taxes and duties payable in accordance with the law and to do this
in such a manner that will sustain confidence in the tax system
and its administration. The action of tax payers-whether due to
ignorance, carelessness, recklessness, or deliberate evasion- as
well as weakness in a tax administration means that failure to
comply
p y with the laws are inevitable? Therefore the tax
administration should have in place strategies and structures to
ensure that non-compliance with the tax law is kept to the
minimum
minimum.

11
 Increasingg Tax Payers
y Compliance
p 12

Develop a comprehensive response to compliance

issues and come up with a comprehensive frame work
on Compliance
C li Ri k Management
Risk M t

Compliance Risk Management should comprise:

Identification & Assessment of Risk
Prioritization
Treatment of Compliance risks
Plan & Implement Strategies
12
 Increasingg Tax Payers
y Compliance
p 13

To ensure effectiveness of above program the FBR

would also need to develop Compliance Monitoring
Framework
Framework

Compliance
Co p a ce Monitoring
o to g Program
og a sshould
ou d include:
c ude:
Range of measures and indicators for each type of
Risk
Document its approaches and results
Greater understanding & dialogue among various
stake
k holders
h ld
13
 ComplianceRiskManagementProcess

OperatingContext

Identifyrisks

Monitor Assessandprioritizerisks
Performanceagainst Evaluatecompliance
plan outcomes
Registration
Filing
Reporting
Analysecompliancebehavior Payment
(Causes,optionsfortreatment)

Determinetreatmentstrategies

Planandimplementstrategies

14
 Tax Payers
y Compliance
p FBR HQ
Q
15

A Dynamic & Robust Head Quarter is critical

Most TA are organized on functional lines
A unit for each functional are at HQ is responsible for

Strategic and Operational planning

Development
p of National Program
g
Provision of Technical Advice
Establishment of Resource Level
S i off performance
Setting f targets andd measurement systems
Monitoring & Evaluation of field Operations

15
 Tax Payers
y Compliance
p FBR HQ
Q
16

FBR HQ needs to be reorganized with functional

specialization
p clear flowingg all the wayy down to the
level of field formations at LTU and RTO levels.

Four functional
F f ti l divisions
di i i needd to
t be
b created
t d namely:
l
Operations/Enforcements
Tax payer
payerss audit
Registrations (broadening of tax base) and
Litigation
g support/legal
pp g at FBR with clear
demarcated staff at field formation level
(All the staff at the field formation level should be divided in these
y reporting
functional lines directly p g to functional head at FBR))

16
 Tax Payers
y Compliance
p FBR HQ
Q
17

This re-organization will help in development

off risk
i k based
b d compliance
li programme by
b eachh
division and a complete ownership and
accountability
bili off the
h programme

17
 TAX AUDIT 18

Tax audit is a core function in any Revenue

service
i

Effective
Eff ti ttax audit
dit is
i mostt effective
ff ti tool
t l to
t
ensure compliance to law by the tax payer

There is a serious lack of capacity to perform

any type of meaningful tax audit both at the
Head Quarters and at field formations

18
 Tax Payers
y Compliance
p - HR 19

An effective revenue organization must comprise

trained and dedicated persons with integrity,
transparent processes, a comprehensive information
system,
t andd taxpayer
t education
d ti

Federal
F d l Board
B d off Revenue
R A 2007 provides
Act. id wide
id
powers as to HR management to effectively run the
organization

19
 Tax Payers
y Compliance
p - HR 20

To respond to challenges being faced, the FBR

as a short
h term measure should
h ld induct
i d hi h
high
caliber professionals to augment and strength
management at HQ as well ll as field
fi ld formations.
f i

FBR/ GOVT.
GOVT can alsol alternatively
lt ti l think
thi k off
induction of mid-career recruitment of
experience
i t consultants
tax lt t withith experience
i i
in
law and accounting directly into higher grades

20
 Tax Payers
y Compliance
p - HR 21

In Short to Medium to Curriculum of the

training directorate needs to be augmented and
the training made more rigorous.
rigorous

The period of specialized training should be

extended to at-least one year( Ideally two
years)

Minimum of three months ppractical trainingg

should be mandatory before a formal posting
21
 Tax Payers
y Compliance
p - HR 22

Training should be a continuous part & parcel

off professional
f i l staffff at FBR.
FBR
Directorate should offer mandatory structured
training programs for all levels of staff at the
FBR.
Performance at these courses should be linked
with future promotions.
p
High performers may be allowed to stay in
Audit and Registration wings
22
 Tax Payers
y Compliance
p - HR 23

In the longer run we need to work on the idea

off creating
i a Specialized
S i li d TaxT Service
S i totally ll
separate and independent of Civil Services of
P ki
Pakistan.
This would also require a complete revamp of
Directorate of Training to convert it into
Centre of Excellence.
GOP can carry out an independent study for
the ppurpose.
p
23
 POLICY BOARD 24

Exist under Section 6 of the Federal Board of Revenue

Act, 2007.

Scope should
S h ld be
b enlarged
l d to
t include
i l d formulation
f l ti off fiscal
fi l
policy in consultation with stake holder.

Headed by MOF, should include the Minister for

Planning and the chairman of the respective committee
of both houses of Parliament,
Parliament Chairman FBR,
FBR Secretary
Finance and Members from cross section of civil society.

24
25
 DIRECT TAXES - Corporatisation
26
Corporate Tax rate
33 per cent is one of the highest in the entire region.
Highest
Hi h t tax
t rate t in
i all
ll forms
f off legal
l l tax
t vehicle.
hi l
Negative for documentation, growth and investment
Reduce the effective corporate tax rate to 30%
30%-
25%(2.1)

Small companies
Should be brought at par with an association of
persons and individuals for the purposes of
withholding agent under section 153. (2.8)

26
 DIRECT TAXES
27

Professionals Taxation
At greatt disadvantage
di d t as comparedd to
t other
th tax
t payer
due to disability to change their legal form.
Higher
g rate of tax
Non availability of various tax credits
Allow taxation in their individuals hands as in past
(2 2)
(2.2)

27
 DIRECT TAXES - Documentation
28

Rate of tax credit under section 65A: (2.7)

should
h ld beb iincreasedd from
f 2.5%
2 5% to
t att least
l t 5% .

condition of making at least 90% sales to persons

registered under the Sales Tax Act should be
replaced with the NTN holders.

credit
should also be allowed to set-off against
minimum tax and final tax liabilityy

28
 DIRECT TAXES Presumptive Tax Regime
29

Corporate sector (except for income from exports)

should be excluded from final tax regime
unconditionally .

Alternatively, the corporate sector be excluded from

the final tax regime
g and subjected
j to minimum tax
with the facility to carry forward the difference of
actual tax liability and minimum tax for adjustment
against
g the normal tax liability.
y ((2.9))

29
 DIRECT TAXES - Appeals
30

Appeal Process Should be Objective and strong.

Amendment made in section 130 (4) allowing a

departmental officer to become judicial member of
ATIR should be withdrawn (2.12)

Officer once appointed

Offi i d as Accountant
A M b ATIR
Member
should not be transferred back to the department
(
(2.12)
)

The powers of Commissioner appeals to grant stay

for a period of thirty
thirty days
days should be enhanced to
allow stay till the decision of the appeal (4.2)
30
 DIRECT TAXES - Appeals
31

Tax payer should be allowed a

compensation
p for disputed
p tax demand,,
recovered but later deleted in appeals (2.21)

Decision of ADRC should be made binding

on FBR, and only in case of serious
reservations,
i FBR may be
b allowed
ll d to
appoint another Committee (2.23)

31
 DIRECT TAXES
32

Policy
y decision to do awayy with all
amnesty schemes (2.14)

Section 111(4) should be abolished.

Alternatively its applicability should be
made subject to scrutiny if it exceeds
the limit p
prescribed byy SBP ((2.13))

32
 DIRECT TAXES Broad Of Tax Base
33

Withholding tax on electricity consumption

by commercial consumers should be
increased and fixed at a flat rate of 25% of
electricity
l i i consumption
i andd forf other
h
consumers at 10% (3.5)

Withholding tax at the rate of at least 5%

and 10% on natural gas consumption by
industrial and commercial consumers
respectively
p y should be introduced (3.5)
( )
33
 DIRECT TAXES Bonus Shares
34

Clause 103B withdrawn by finance Act 2013

should be restored.
restored
Taxation is a negative fiscal measure for growth
and investment.
investment
Would increase the cost of doing business.
Th tax
The t collection
ll ti would ld be
b largely
l l offset
ff t by
b
reduction in capital gain tax.

34
 DIRECT TAXES
35

To p
promote and incentivize export
p of
services, income from export of all types of
services should be exempted OR brought at
par export of goods (2
(2.15)
15)

Due date for filing of income tax return by

salaried individuals, non-salaried individuals
and AOPs be aligned
g to 30th September
p or
sixty days from notification of return form or e
system is in place, whichever is later.(5.9)

35
 DIRECT TAXES - Facilitation
36

To facilitate the tax p

payer
y and reduce the
dispute the limits of minimum threshold
exempt from deduction of tax from on account
of supplies and services fixed in 1991 at Rs.
Rs
25,000 and Rs. 10,000 need to be suitably
revised.

The Limit on contribution by

y employer
p y at Rs.
100,000 to recognized PF fund being unfair
need to be deleted.

36
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