KARACHI: Ashfaq Yousuf Tola, chairman of recently formed Reforms and Resource Mobilization Commission (RRMC) of Pakistan, on Sunday said he was "confident" of playing a catalyst role in the simplification of the country’s complex taxation system and cut the informal, parallel economy to size.
Pakistan has been grappling with a widening current account deficit, a balance-of-payment crisis and inflation hovering around historic highs in recent months. The South Asian nation has also witnessed an economic slowdown in the wake of recent floods that have damaged huge infrastructure and agriculture output.
Pakistan’s Finance Minister Ishaq Dar last week constituted a powerful commission to review the existing revenue policies, identify issues and risks of existing tax system, review budget proposals and evaluate their consequences as well as review complexities of tax legislation.
Tola, who is currently serving as a technical advisor on the Board of International Federation of Accountants, would directly work under the finance minister and hold a full-time office at the Islamabad headquarters of the national tax agency, the Federal Board of Revenue (FBR).
“This commission is completely independent and will play a key role in addressing complex taxation and other economic issues,” Tola told Arab News in an exclusive interview on Sunday.
“The commission will have access to analyses, revenue policies and meet with the stakeholders. The commission will have its input in budget and budget evaluation.”
The RRMC head, president of the Institute of Chartered Accountants of Pakistan (ICAP), has an experience of over 30 years in financial and forensic auditing, tax advisory and corporate structuring.
The 11-member commission headed by him comprises FBR chairman, experts on taxation and economy, and representatives of the business community.
This is the second commission formed by Dar in the last eight years and is given both short- and long-term objectives, with a major focus on finalization of taxation measures for next fiscal years.
“This commission is completely different from the previous one and it has no lifecycle,” Tola said. “This time strong players have been picked up for the commission who have the capability to deliver.”
Asked how the commission would work, Tola said it would form different sub-groups to come up with assessments of their relevant fields.
“For instance, economists would be tasked to evaluate the size of parallel economy and the chartered accountants would be asked to draw global comparison and identify snags and [present] recommendation on how to rectify them,” he explained.
Pakistan has complex taxation measures in place, which experts say are highly "oppressive" in nature.
“Pakistan’s tax system is complicated, fragmented, oppressive, narrow and anti-growth. It has one of the highest rates for the corporate sector,” Dr Ikramul Haq, a Lahore-based taxation expert, told Arab News.
“It is highly oppressive for salaried persons and citizens with fixed income living under hyperinflation. It levies and collects main taxes at import stage, making exports uncompetitive and increasing the already heavy cost of doing business.”
The Tola-led commission is assigned a daunting task to come up with recommendations to reform the ages-old taxation system and broaden the tax net.
Pakistan has less than 3.5 million income tax filers, with a majority declaring its income below the taxable limit or reporting losses. The number of individuals registered for sales tax is less than 350,000 and actual payers are less than 85,000, the rest claim refunds, according to official data.
Haq suggested dismantling the fragmented tax structure by giving power to the federation to levy and collect tax from all sources, including from the ones whose income is based on agriculture.
Provinces should have exclusive jurisdiction over harmonized sales tax on goods and services and all these should be collected through a national tax agency, he added.
The RRMC is given an April 2023 deadline to submit its first report, which Tola is confident to meet.
To a question about the timing of the RRMC formation amid an uncertain and fluid political and economic situation, Tola said the formation of the commission was a "good initiative" and must be kept apolitical.
“This is a good thing formed and if it is kept apolitical that would be good for the country,” he said.
He, however, conceded that there was no guarantee of the commission’s future in case the government changes.
Pakistan has been hit by political instability for years now, which has aggravated since the ouster of former prime minister Imran Khan in April.
The instable political situation has been taking a toll on the country's frail economy, already suffering from devastating impacts of the floods.