Agriculture in focus Ministry suggests tax to increase fiscal space

By Muhammad Toori

KARACHI: The Ministry of Finance (MoF) has suggested bringing agriculture into tax net and cutting subsidy by ten billion rupees in the next fiscal year to create fiscal space, a ministry official said.
The subsidies provided to the agriculture sector in current fiscal year stand at 12 billion rupees which must come down if the government wants to increase the fiscal space and phasing out of exemptions (to broaden the tax base and ensure horizontal equity in the tax system) is necessary, he added.
Ministry suggested that for further enhancement to the revenue base could potentially derive from introduction of tax on agriculture income, capital gains tax on real estate, on stock market and review of exemptions other than the GST/VAT. Pakistan is confronted with low tax to GDP (at market prices) ratio during the past few years. The ratio of federal taxes administered by the Federal Board of Revenue is below 10 per cent which is low even in relation to other emerging countries. Number of factors are responsible like narrow tax base, wide spread exemptions, low contributions of major sectors as compared to their contributions in the GDP.
In order to curtail these issues government is focusing on new sectors to bring them into tax net through new laws like cotton and rice trading would be taxable under the new law, provided annual turnover exceeds 7.5 million rupees. Agriculture trading like the agricultural machinery, cotton trading and rice trading would be taxable under the VAT. It is estimated that around 120-150 billion rupees would be collected following enforcement of the Federal VAT Act in the first year and the collection would gradually improve with the expansion of the tax base under the new law.