ISLAMABAD: In order to make taxation structure progressive, Balochistan has proposed three major constitutional amendments for excluding income tax (minus Withholding Tax) from divisible pool, making non-tax revenues as part of resource distribution formula and move income tax on agriculture from provincial to federal domain for finalising the NFC Award.
“There is need to remove income and corporate tax from divisible pool while Withholding Tax (WHT) should remain into fold of divisible pool of the NFC. There is need to provide provincial share in non tax revenues and move income tax on agriculture from provincial to federal domain,” Balochistan’s non official member into the NFC and renowned economist Dr Kaiser Bengali said in a seminar on fiscal federalism arranged at Pakistan Institute of Parliamentary Services (PIPS) here on Thursday.
He said that three constitutional amendments would be necessary to make these proposals effective as Parliament would have to amend Article 160 of the Constitution and the Fourth Schedule Federal Legislative List Part-1.
Giving rationale of these proposals, Dr Bengali said that the country’s tax structure was quite regressive as 88 percent ratio of collected taxes belonged to indirect taxes, including Withholding Taxes (WHT) while the share of direct taxes stood at just 12 percent.
Quoting different studies, he said, the country’s richest 10 percent population pays 10 percent of their income in taxes but the poorest 10 percent pays 16 percent in taxes. The incidence of GST on food and clothing is regressive.
In order to make taxation structure progressive, Dr Kaiser Bengali proposed that income and corporation tax should be excluded from the federal divisible pool in order to incentivise the Centre for bringing rich and wealthy people into tax net. The WHT, he said, should remain part of the federal divisible pool (FDP) for the purpose of resource distribution formula among the Centre and federating units.
He said that he proposed moving of income of agriculture income from provinces to federal domain would choke off tax shelter option being misused for purpose of tax evasion. He argued that the provision of provincial share from non tax revenues would reduce incentives for federal government to raise revenues from such an avenue.
Dr Bengali proved that the debt servicing and defence expenditures witnessed highest growth in current expenditures so provinces alone could not be held responsible for fiscal imbalance.
He condemned the proposals made by the IMF for changing structure of the NFC by bringing in technocrats instead of representatives belonging to the Centre and provinces and said that fiscal imbalance were already worsened even before the enactment of 7th NFC Award.
He said that the main causes of fiscal imbalance were inability of the government to raise revenues and reduce the current expenditures after finalising the last NFC Award. He said that all formulas of NFC had remained static by dealing with resource distribution vertically and horizontally but now time had come to make the NFC dynamic for achieving objectives of socioeconomic development for ensuring enhanced revenues and bring equity in our society