Services sector grossly under-taxed: CBR Chairman Yusuf

ISLAMABAD (August 24 2004): The Chairman Central Bureau of Revenue, Abdullah Yusuf has said that services sector was grossly under-taxed, as the sector contributed 50 percent of the GDP while its receipts were quite low.

Talking to a group of economic journalists, Abdullah said that tax on agriculture was a political and constitutional issue, but the multilateral agencies-the World Bank, IMF and ADB-have frequently insisted on its imposition. Agriculture constituted 25 percent of the GDP while its contribution was not at all commensurate with the potential.

Pakistan's ratio of tax to GDP was 11.5 percent which was low even compared to developing countries in the region where it ranged 17 to 18 per cent, what to say of developed countries.

According to the CBR chief, the industrial sector, which comprised 18 percent of the GDP, was under the tax net. The problem was how to bring the services sector fully under the tax system and how to raise receipts from the agriculture sector. Whereas, the taxation principle is that any income irrespective of source should be taxed.

During his discussion with the journalists, Abdullah Yusuf pointed out that they regarded two other areas should be tapped as at present they were minting money. First, is the stock exchange and the other real estate dealers and developers.

He said that in both these sectors people are making phenomenal profits. Their huge earnings go almost untaxed. In the case of stock exchange, a slight first step has been taken against which already there is a lot of hue and cry.

Abdullah Yusuf explained at length the reform process undertaken in the light of the Shahid Hussain Committee report. Most of it is being implemented and the CBR is being restructured. The road map of reforms will continue till 2008, with financial assistance from the World Bank and DFID.

He disclosed that soon the Bank would sign an agreement with the Government for IBRD assistance of 100 million dollars by year's end. DFID will contribute another 25 million dollars.

The chief benefit of reforms will be simplification of tax payments and creation of trust between the taxpayer and the collector.

The CBR chief personally believed that a persuasive approach wins the confidence of the taxpayer than a policy of distrust or hostility. “The task of the department is to simplify the procedures and facilitate the taxpayers. For this education is essential,” he said.

The tax return forms have been simplified and he sensed that already there was some difference in the approach towards the taxpayer.

In the case of income tax, the self-assessment scheme reposes full confidence in the taxpayer. Now the CBR is launching a self-assessment scheme for the customs clearance.

Custom reforms are under the Custom Administrative Reforms (CARE), where the electronically filed returns from the importers would be acceptable. Currently 32 stages are involved before the goods are released. Returns would be taken before the goods arrive at the port. The new pilot project CARE would cover one-third of the imports.

Karachi International Container Terminal (KICT) would take only hours to clear the goods than 10-15 days at present. This would reduce the cost of doing business.

CBR to enhance confidence of public would start a campaign for educating taxpayers within a month.

He said that currently, 54 percent tax is collected through withholding tax, 35 percent through advance tax and 10 percent through assessment. Now this ratio is being converted into 100 percent through self-assessment.

The CBR chief said that 1.02 taxpayers filed returns for the last year. Out of this 0.425 million are salaried class.

Abdullah Yusuf said reforms are already going on and the self-assessment schemes are implemented in main three taxes namely income, sales and customs. These reforms encompass the automation of CBR working and modern training of its staff.

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