Daily Times

ISLAMABAD: The Institute for Policy Reforms (IPR), a private sector think tank, in its latest report giving proposals for the upcoming budget, suggested the government to declare non-filing of tax returns as crime and increase the penalty for tax evasion.

The IPR report issued on Sunday stated that financial constraint restricts the government from providing public service and infrastructure for the welfare of the people.

“The people want jobs, economic activity, and reliable power supply. Everyone knows the reasons for low tax to GDP ratio. It is now high time to take action against tax evaders,” it added.

The IPR, appreciating the economic polices of the government, said that it has met fiscal challenges successfully. “FBR will most likely achieve this year’s tax collection target. Fiscal deficit also is likely to stay within the target of 4.3%,” IPR said.

The report recommended that though Pakistan’s Extended Fund Facility (EFF) arrangement with International Monetary Fund (IMF) would end soon, the economy must not lose the stability gained in recent years.

At the same time, there should be no new taxes, except to reduce tax expenditure (exemptions) from direct and indirect taxes. Revenue increase must come from broad basing collection. Current expenditure may stay at the present inflation adjusted level.

IPR report further said that growth inducing public investment must increase to enhance productivity.

“It is necessary to increase the development envelope also for the China Pakistan Economic Corridor (CPEC) projects. The government may reorient the Public Sector Development Programme (PSDP) to increase allocation for productive sectors.

The report makes specific recommendations for increase in tax collection. It said that it is important for the government to highlight major delinquent cases. Where necessary, immovable property transactions should require a tax ID. FBR may integrate its database with other organisations to identify non-filers.

Equally, it is necessary to enforce ‘Benami’ accounts restriction on the banks. The report also recommended structural changes in the Federal Board of Revenue (FBR), adding that there is need to simplify procedures, rationalise systems, and remove distortions.

It said the federal government must impress on provincial governments to increase revenue from agriculture and urban property taxes. To build effectiveness in current expenditure, the government must begin to review recurrent expenses, which is about 80 percent of the budget.

Current expenditure receives funding with practically no review. It is critical that expenditure align with government’s major objectives. Zero-based budgets, especially for the over 100 autonomous organisations and departments in the government, would help determine their contribution. This would enable the government to decide their use and further existence.

For effective development spending, Planning Commission may prepare annual plans several months before the PSDP. As the road map for PSDP, there should be broad consultation on the annual plan with political leadership and other stakeholders. This would reduce top down project selection and create a better connection between strategy and budget. Rather than spreading thin limited resources, Planning Commission must prioritise three or four sectors for funding so that projects do not have a throw forward of more than three years (other than for operational reasons).

Reduction in the number of PSDP projects would help with timely completion of priority projects while staying within Ministry of Finance’s envelope. To ensure long-term benefits from projects, new approvals must have MoF’s assurance that funds for maintenance would be available.

The report emphasised that budget preparation must not be an exercise to balance receipt with expenses. It must support the country’s development strategy. The budget must meet larger objectives of the economy such as to build competitiveness and alleviate poverty.