ISLAMABAD: Government of Pakistan has reiterated its commitments to International Monetary Fund through a letter of intent recently published by IMF.
According to the Letter of Intent dated December 5, 2013 available on the IMF website, the government said that it remained committed to the plan to broaden the tax net through elimination of most tax exemptions and loopholes granted through SROs. Since the start of the programme, FBR issued a few SROs to address some implementation issues of already budgeted measures and address some legal concerns. The budgetary implications of these SROs are negligible and the government claimed it is covering the cost through administrative measures.
According to the letter, the government has issued no new SROs granting any exemptions. The government reaffirms its commitment to refrain from issuing any new tax concessions or exemptions (including customs tariffs) through SROs, and will approve legislation by end-December 2015 to permanently prohibit the practice.
It further said that the government is on track to quantify the remaining tax expenditures and publish a detailed list in the budget in coming years. These steps will facilitate gradually moving the General Sales Tax to a full-fledged integrated modern indirect tax system with a few exemptions along with an integrated income tax by 2016-17.
The letter also mentioned the plan which the government has already finalized for analysing all existing SROs granting tax exemptions or concessions containing a calendar to eliminate the vast majority of them and convert the remainder into regular legislation. According to the text in the letter the ultimate objective of this plan would be to achieve an increase in revenues of some 1-11/2 percent of GDP, with all designated SROs eliminated in no more than three years. By end-June 2014, the government commits to issue the necessary orders to eliminate the first batch of SROs – which will be identified in the plan – consistent with the overall fiscal goals (new structural benchmark).
The government has committed that the tax administration reforms will gradually deliver further improvements in revenue collections. An initiative to incorporate 300,000 new taxpayers into the income tax net was launched in July. More than 30,000 initial notices (Income Tax Ordinance 2001) have been issued-based on large potential fiscal liabilities and location to ensure the initiative is nationwide and more will follow.
FBR has started issuing second notices which will be followed by a provisional assessment, collection procedures, and penal and prosecution proceedings. By end of March 2014 (new structural benchmark), Federal Board of Revenue (FBR) will issue 75,000 first notices (u/s 114) and will follow up with a second notice to at least 75 percent of those who did not respond satisfactorily to their first notice within 60 days. FBR will also issue a provisional tax assessment to 75 percent of those who did not respond satisfactorily within 60 days to the second notice. The government claimed progress in preparing initiatives to enhance revenue administration for sales tax, excises, and customs.
These efforts will be further assisted by increasing the number of tax audits to 4.2 percent of declarations (from 2.2 percent), which is already underway, the letter reads. The government further committed to continue to seek technical assistance on tax administration from other international partners and to amend the 2010 Anti-Money Laundering Act (AMLA) to include tax crimes in the Schedule of Offences to enable the use of anti-money laundering tools to combat tax fraud by end-June 2014.
