Post Source: DAWN Staff Reporter – 13 Feb, 2010
ISLAMABAD: The government would bring new services into the tax net in next year’s budget and generate meaningful revenue contribution from property, agricultural sector and stock markets, Finance Minister Shaukat Tarin said on Friday.
During a meeting with a task force on private sector development, the minister said the government would convert capital value tax on property into capital gains tax and its rate would be kept dynamic. He said a tax on agricultural income would be introduced in the next financial year. About the capital gains tax, the minister said talks would be held with stock markets representatives next week and the process could be completed much before the finalisation of the new budget.
Later, talking to journalists, the minister brushed aside speculations about his resignation and said he was not the kind of person who would leave the field and run away, adding that he would prefer to confront any opposition. Mr Tarin said the government planned to empower and strengthen all regulatory bodies to improve governance, adding that he would ensure that heads of all regulatory bodies were hired purely on professional consideration.
He said the appointment of the heads of regulatory bodies like State Bank, Auditor General, Nepra, Pemra and Ogra would be presented before parliament for ratification for the sake of credibility and people’s confidence. He said the government would introduce laws under which the Auditor General of Pakistan would submit his reports and findings directly to the Public Accounts Committee.
When asked how did the government plan to reform the legal and judicial system for dispute resolution and economic issues, the minister said his ministry planned to sit with judges to resolve the matter.
Taxing agriculture
The government’s financial difficulties seem to have compelled policymakers to refocus attention on improving revenue through taxing agricultural income. This was underscored by the finance minister’s vow to impose agricultural income tax from the next financial year.
Agriculture constitutes almost one quarter of our economy. Yet successive governments have failed to effectively tax income generated by the sector. Agricultural income tax, as a result, has remained stagnant at less than Rs1bn for more than a decade despite the prices of agricultural commodities having risen manifold over these years.
As things stand today, agricultural income tax is mainly collected in Punjab. In Sindh, its collection remains insignificant and there is hardly any recovery in Balochistan or the NWFP.
The stagnation in agricultural income tax recovery is blamed on the presumptive nature of the tax and exemptions given to small landholders.
Imposed effectively and indiscriminately, agricultural income tax has immense potential to generate billions of rupees in government revenue. But powerful landholders have always used their political clout to counter efforts to tap the potential of this tax.
It remains to be seen how the government withstands the pressure exerted by them if and when it tries to increase the collection of agricultural income tax.
However, one thing is quite clear: the government is fast running out of time to increase its tax revenues. It must raise the abysmally low tax-to-GDP ratio of less than 10 per cent, which is at the heart of the budgetary problems staring the government in the face.
Sustainable growth will remain a pipedream unless the government’s fiscal position improves through a drastic increase in the collection of tax revenue.
Nevertheless, an effective, exemption-free agricultural income tax alone is not going to strengthen the financial position. The government also needs to do some serious thinking to do away with tax exemptions allowed to the real estate sector and share business.
These two sectors have enormous potential of generating revenue. Taxing them will also weaken opposition to agricultural income tax. The principle of equity demands that nobody be exempted from paying taxes irrespective of the source of their income.
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