FBR Chairman Amjad Zubair Tiwana recently brought to light a significant disparity in tax contributions across different sectors in Pakistan. He revealed that the salaried class pays a substantial Rs375 billion annually in taxes, in stark contrast to exporters, who contribute Rs90-100 billion, and retailers, whose contributions are a mere Rs4-5 billion. This revelation sparked a heated debate in the Senate Standing Committee on Finance, particularly as it discussed the Finance Bill 2024-25.
Senators expressed shock and unanimously rejected the proposed tax hike on the salaried class, arguing that this segment already bears a disproportionately high tax burden. The discussion around the Finance Bill saw a mix of views on whether exporters should be taxed under the normal regime. This debate is pivotal as the Federal Board of Revenue (FBR) aims to adjust the tax regime for exporters to raise an additional Rs125 billion. Furthermore, the FBR expects retailer tax collections to increase significantly to Rs50 billion next year, indicating a broader strategy to diversify and balance the tax burden across different economic sectors.
The stark disparity in tax contributions raises critical questions about the equity and fairness of the current tax system in Pakistan. The salaried class, which typically has little to no means of tax avoidance, seems to be overburdened. This situation is exacerbated by the relatively low contributions from retailers and exporters, sectors where tax evasion and underreporting are more prevalent. The senators’ rejection of the proposed tax hike on the salaried class reflects a growing consensus that the tax burden needs to be more evenly distributed.
In detailing the Finance Bill 2024-25, the FBR’s strategy to address these disparities includes significant changes to the tax regime for exporters. By moving exporters to a normal tax regime, the FBR hopes to increase tax revenues from this sector, which has traditionally enjoyed various tax exemptions and incentives. This shift is expected to not only raise additional revenue but also promote greater transparency and compliance among exporters.
The reaction from senators and stakeholders in the business community indicates that while there is support for a more balanced tax system, there is also concern about the impact of these changes on the competitiveness of exporters. Exporters argue that higher taxes could undermine their ability to compete in international markets, potentially leading to a decline in export revenues. This concern is particularly pertinent given the current global economic uncertainties and the need for Pakistan to maintain a robust export sector to support its economy.
On the other hand, increasing the tax contributions from retailers is seen as a necessary step towards broadening the tax base. The current contributions from retailers are disproportionately low, and improving compliance and reporting in this sector could significantly boost tax revenues. The FBR’s target to increase retailer tax collections to Rs50 billion reflects an ambitious but necessary move to ensure that all sectors contribute their fair share to the national exchequer.
The debate over the Finance Bill 2024-25 also highlights the broader challenges facing Pakistan’s tax administration. Ensuring compliance and reducing tax evasion require not only changes in tax policy but also improvements in tax administration and enforcement. This includes leveraging technology to better track and manage tax collections, enhancing the capacity of tax officials, and fostering a culture of compliance among taxpayers.
Moreover, the senators’ unanimous rejection of the proposed tax hike on the salaried class underscores the need for policies that promote tax equity. The salaried class already contributes significantly to the national budget, and further increasing their tax burden could have negative economic and social consequences. Instead, there is a call for measures that reduce the tax burden on this class while ensuring that other sectors contribute more equitably.
In conclusion, the revelations by FBR Chairman Amjad Zubair Tiwana and the subsequent debate on the Finance Bill 2024-25 have brought to the forefront critical issues regarding tax equity and fairness in Pakistan. The substantial disparity in tax contributions among different sectors highlights the need for a more balanced and equitable tax system. As the FBR aims to raise additional revenues by adjusting the tax regimes for exporters and retailers, it is essential to consider the broader economic implications and ensure that the tax system supports sustainable economic growth. The ongoing discussions and decisions on the Finance Bill will be crucial in shaping the future direction of tax policy in Pakistan, striving towards a fairer distribution of the tax burden across all segments of the economy.