According to newspaper reports, Finance Minister Ishaq Dar has given the go ahead to a new tax regime for five export-oriented sectors. The government has also decided to abolish sales tax on inputs in the textile sector and is likely to clear the outstanding refunds in a couple of months. The move is apparently being seen as the desperate effort to implement a single-stage sales tax program in the country. Experts see disbursement of refund claims as another story of corruption and mismanagement in the country while a narrow tax base is the cause of concern for the government where the number of return filers has been decreasing every year. The current number of taxpayers is less than 1 million in a country of 200 million people. The software export is emerging as the prime sector of foreign exchange earnings after the textile sector, but the companies engaged in the information technology are leaving Pakistan to settle in Dubai, Kuala Lumpur and Singapore. No one in the government has time to check disappointment of the investors or persuade the software developers to stay in the country.
According to a senior government official, the tax refunds have become a source of corruption as certain percentage of the refund money allegedly goes into the pockets of corrupt elements. The monetary regulations in the country also encourage people to either conceal their income or send it abroad through illegal means. The foreign investors are also shy of investing in the country due to social sensitivities and conflicting laws. The government needs a strong writ within its jurisdiction along with investment friendly policies to maintain order in the country and attract foreign investors. There is a need to introduce soft tax regime which will be a kind of investment by taxation authorities to enhance tax net. Amid concerns and misgiving about the tax laws, there is hard to imagine any local or foreign investor will bring or keep his money in the country. The government through a recent bill is trying to take extreme measures to regulate the money transactions and curtail the incidents of money laundering. But experts believe it will open floodgates of corruption once again.
The government will stay 5 percent sales tax at retail stage of garments and fabric whereas zero-rate for the local supplies of textile, leather, carpets, surgical and sports sectors from July will improve exports of the country. However, the government needs to simplify laws, develop an effective information technology infrastructure and has to curb corruption. A liaison within the government departments is also need of the hour.
