The Pakistan Business Council (PBC) has reiterated its call for an independent and equitable fiscal policy, separate from the Federal Board of Revenue (FBR), to ensure effective enforcement and long-term economic growth. The PBC argues that combining policy-making with tax collection leads to short-term revenue measures that undermine sustainable development.

In a recent tweet, the PBC emphasized that a higher tax-to-GDP ratio can be achieved by fostering investment and business growth, thereby increasing taxable revenue, and by broadening the tax base to include untaxed and under-taxed sectors.

Pending the separation of policy from collection, the PBC held a detailed discussion with the Chairman of the FBR on plans to enhance the FBR’s enforcement capabilities. The PBC expressed its support for these proposals and assured the Chairman of its full cooperation. It recommended several measures to ensure the success of the transformation plan:

1. Differentiation and Transparency: The PBC supports differentiating between filers of small and large incomes and assets, and denying privileges to those who do not declare their income and assets. It stressed the importance of maintaining transparency, particularly through the use of databases to expand the tax net. The PBC noted that penal withholding taxes on “non-filers” have not effectively expanded the tax base.
2. Impact on the Informal Economy: The PBC urged the FBR to communicate the potential impact of its proposals on the informal economy, particularly employment. It suggested phasing in measures such as disconnecting utility connections for businesses not registered for sales tax and restricting credit and debit card use by “non-filers” for foreign expenditures.
3. KYC Challenges: The PBC highlighted the challenges faced by the formal sector in performing Know Your Customer (KYC) checks on all suppliers and customers. It was assured of the FBR’s cooperation in resolving these issues and informed about a proposed “Red, Yellow, Green” classification system for registered businesses to guide KYC requirements.
4. Cash Transactions: The PBC supports the FBR’s proposal to limit cash withdrawals, while welcoming the decision not to restrict cash deposits in banks. It requested time for labor and daily wage employees to open bank accounts for wage transfers and suggested incentivizing non-cash transactions with provincial agreement.
5. Technology and Compliance: The council discussed using technology to trace goods movement and recommended pilot programs to improve effectiveness. It urged the FBR to avoid overburdening the formal sector with additional audits and to focus resources on those outside the tax net. The PBC also recommended gradually tightening compliance requirements to encourage point-of-sale integration in retail.
6. Border Controls and Smuggling: The PBC supports strengthening border controls to combat smuggling and has recommended securing Exchange of Data Interface (EDI) agreements with major trading partners to prevent mis-invoicing. It also proposed recovering all customs duties, income, and sales taxes on goods transiting through Pakistan to Afghanistan, transferring these to the Afghan government. Additionally, it suggested using fuel marking dyes to identify smuggled fuel.

The PBC emphasized that the success of the FBR’s transformation plans depends on the quality of implementation and strong political will, with cooperation from the formal sector being crucial.