960410

Bilour demands

tax on all

incomes, lower

mark-up, FTS

RECORDER REPORT

ISLAMABAD: The President of Federation of Pakistan Chambers of Commerce and Industries (FPCCI) has called for following the principle of taxing all incomes whatever the source to combat challenges of resource constraint and mounting inflation.

Addressing the annual pre-budget meeting of the Advisory Council of Finance Division, the FPCCI president Senator, Ilyas Ahmed Bilour said that the provincial governments should be asked to impose tax on agriculture income, failing which the Federal Government should amend the constitution to enable it to deduct the proportionate amount from the divisible pool of each province.

The FPCCI president also criticised the high mark-up rate on bank loans around 20 to 25 percent which impeded investment; neglect of the cheap hydel power generation and undue focus on thermal generation which would push electricity tariffs still higher.

Bilour said the budget deficit of the government is the main problem faced by the national economy which was continuing for the last several years. The budget deficit as a percentage of GDP, although lower than the 8.7 percent in 1990-91 was still higher than the desired level. In the budget for 1995-96 the government announced a plan to reduce budget deficit from 5.6 percent to 5 percent of GDP but there appears to be no let up in government spending and borrowing. Even the Governor of State Bank of Pakistan and Deputy Chairman of Planning Commission in the NCCC meeting expressed their concern over an unusually large increase in government borrowings for budgetary support after December, 1995.

The continuing deficit financing, the government's policy to arbitrarily increase the support prices of various agricultural commodities and fixing the rates of utilities like electricity, fuel and gas were all contributing to increase the inflation rate.

Bilour said: "While we are not cutting our coat according to the cloth, we are over-taxing those who are already in the tax net to meet the growing needs, leaving those outside the tax-net, even the big land-owners, scot-free. This is neither just nor fair and it has resulted in lot of heart-burning and has given rise to tax evasion and other malpractices.

"I suggest that till such time as the constitution of Pakistan is amended so as to enable the Federal Government to tax agriculture income, the Provincial Governments should be asked to levy tax on agriculture income and they should be given targets to achieve, failing which their share from the divisible pool be deducted proportionately.

He added "the exemptions given to agriculture sector with regard to wealth tax are numerous and only a few lakhs of rupees have been collected under this head. The agriculturists have been given exemption of Rs 1 million as all assessees are given. Besides, they are given Rs 1 million extra exemption on agriculture property and a house pertinent to agriculture land, a jeep which may be Mercedez, a Land Cruiser or a Pajero. I suggest that for businessmen a home and a shop must be given exemption from wealth tax."

Continuing the FPCCI president said that the government by faithfully following the universal principle of taxing all income from whatever source would not only tide over the constant problem of revenue shortage but also relieve the common man from inflationary pressures and continuous arosion of the real worth of his income. Criticism the present policy, he said, "after squeezing the tax payers to the utmost through high direct taxation rates, the government is employing income tax which is a direct tax as an indirect tax in the form of presumptive tax and advance tax, the burden of which is passed on to the consumer. The managers of our economy are now planning to make full use of General Sales Tax in place of customs duty whose tariff they are forced to reduce drastically under international pressures. The net result of all these taxes will be a heavier burden of tax on the consumers, vast majority of whom belong to the low income group.

"The Government is planning to do away with fixed tax scheme. This is a very useful scheme which has saved the small sector trade and industry from harassment and lot of complex procedures and paper works. The scheme has also ensured adequate revenue for the Government. We fear that if the scheme is withdrawn the Government will not be able to get even a portion of the revenue it is getting today. We are ready to sit together and increase the revenue for the Government".

Turning to credit system, Bilour said: "Due to decapping of ceiling on mark-up and huge borrowings by the Government the mark-up on bank loans has shot up to 20-25 percent as a result of which all economic activities have come under great strain. Coupled with high mark-up rate the low savings rate in the country has greatly squeezed the availability of funds for investment. There is thus urgent need to adopt such policies as would encourage savings, austerity and simple living.

On utilities' charges, he told the Advisory Council: "During the last seven years the electricity tariff in Pakistan has been increased by 371 percent to offset the huge losses of the power generating and distribution agencies which have resulted from their inefficient operations, huge surplus staff and heavy leakage of revenue and transmission losses. Although our country has enormous potential of hydel power generation which is the cheapest source of energy, we have been forced to invite foreign investment in thermal or gas/coal fired power generation by offering the most lucrative incentives. This means that when power from these units is supplied to WAPDA or KESC the power rates will be further increased.

Although we achieved the export target of US $8 billion in 1994-95 the results of the first eight months of the current fiscal are discouraging. The most pronounced reasons for the set back in the export sector are the ever increasing production costs, abrupt change in the policies including unilateral reduction in duty drawback rates, delays in payment of duty drawback claims and inordinate delays in implementation of export friendly policies. In order to make our products competitive in local as well as in international markets, the government must ensure that the local manufacturers would work under similar terms and conditions and environment as their foreign competitors which means that the incidence of taxes, duties and levies and the costs of inputs and utilities would be more or less the same for both. If the government implements the tariff reforms as required under the WTO Agreement without giving breathing space to our industrial sector to adjust to the new environment of liberal imports at reduced duties, most of our industrial units will be closed down, sooner or later.

"In nutshell, our economic system is suffering from uncertain and inconsistent economic policies, un-clear decision making, regulatory hang-over and ineffective and lethargic implementation process. Due to inconsistent economic policies, not only the industries operating in the country face serious problems, the prospective investors who may be thinking of coming to Pakistan also turn their backs".