20000402

Budget proposals

FPCCI wants five-year moratorium

on external repayments

RECORDER REPORT

KARACHI: In its proposals for the federal budget 2000-2001, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has suggested that Pakistan should opt for a five-year moratorium on external repayments to enable the economy to react favourably to the foreign exchange boosting measures "without the sword of uncertainty hanging over it."

In the 38-page document, which was forwarded to the Ministry of Finance on Friday, it has been emphasised that a moratorium was necessary, for identifying and removing hurdles in export growth.

The proposals were presented by FPCCI President Fazal-ur-Rehman Dittu. In the preamble, it has been highlighted that "whilst the necessity of containing the local deficit cannot be overlooked, the dire necessity of increasing our foreign exchange earnings (visible as well as invisible) is of primary importance so that we are able to finance our imports as well as service the foreign debts from our own foreign exchange resources."

"We have been persistently running fiscal and balance of payments deficits which have resulted in piling up of local and foreign debts," it said. To tackle the situation, governments in the past tried different methods but unfortunately in the absence of well-thought out and appropriate measures the situation had been continuously deteriorating and we were now in a vicious circle - uncertainty causing low investment/production, which in turn, creates more uncertainty.

On the internal front, federal tax revenues have increased from Rs. 159 billion in 1992-93 to the expected Rs. 356 billion in 1999-2000 i.e. an increase of Rs. 197 billion or 124 percent. This has not solved the problem as the debt-servicing has balanced from Rs. 97 billion to Rs. 287 billion in the same period i.e. an increase of Rs. 190 billion or 196 percent.

On the external front, the balance of trade has remained in constant deficit totalling $18 billion in these years as the exports which were $6.78 billion in 1992-93 reached only $7.5 billion in 1998-99. In the same period imports which were $10 billion in 1992-93 rose to $12 billion in 1995-96, but were contained to $9.35 billion in 1998-99 largely due to the decrease in POL and edible oil prices.

Highlighting the importance of tax reforms, it said that there are three essential pre-requisites of a viable taxation system. Judging from these parameters we can very easily gauge our system in perspective:

1. No system of taxation can work successfully unless the tax payer has the satisfaction that the taxes paid by him are being judiciously used by the government. This satisfaction will encourage the tax-payer in paying his due share of taxes honestly and scrupulously. The legacy of coercion and extortion inherited by us from the days of colonial rule has got to be done away with, and the sooner, the better.

2. Taxes (whether direct or indirect) should be levied on those sectors only which have the capacity to pay. The ratio of tax to income, or accrual benefit, should be reasonable and equitable. If the ratio is unreasonable, it would breed a tendency of tax evasion. The taxation system should be broad-based to infuse a sense of participation.

3. Tax laws have got to be simplified and streamlined, especially in a society like ours where the rate of literacy is on the lower side. Complicated laws and rules would only add to ambiguity and confusion. The system has got to be pragmatic under given circumstances.

To encourage documentation the withholding tax at the rate of 0.3 percent at present levied on pay orders, bank drafts, etc. be withdrawn. Also the sanctity of cheques be ensured so that there is no hesitation in accepting payments through cheques. Our next budget needs to concentrate on :

All taxation laws should be re-drafted. There are a number of taxes, levies, fees, etc. which yield very small amount of revenue to the government but a constant source of harassment, nuisance, corruption, etc. For example wealth tax, withholding tax on electricity and telephone bills and TV license fee which yield small revenue be abolished.

The determination of profit or loss, disallowing the permissible deduction, making add-backs in the declared income, re-opening of cases, etc. are not done under well-defined and justified parameters, but through the discretion of assessing official concerned.

In view of the above, and the fact that the present law even after 600 amendments is full of ambiguities, it has been suggested that a fresh law be enacted in consultation with the FPCCI, chambers, tax bars, etc meeting the criteria of simplicity and unambiguity.

The FPCCI proposals also cover wealth tax and sales tax. It has been suggested that the exemption limit of wealth tax be raised to Rs. 5 million. On sales tax it has been said that it is essential to make it productive, business-friendly and conducive to documentation.