KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) in its pre-budget proposals has stated that the country cannot afford to continue with the current narrow tax base due to outdated tax regime, discretionary powers and disproportionate hold of bureaucracy on formulation of economic and tax policies.

The current taxation regime of both direct and indirect taxes has created distortions in economy, it said.

The Federal Board of Revenue (FBR) has not been able to broaden the tax base, and is relying heavily on indirect and withholding taxes, it said.

Despite high rate of general sales tax (GST) at 17 per cent and additional three per cent on commercial imports, the net collection of GST after refunds and adjustments is hardly 3.75 to 4.25pc, it stated, adding that the GST be brought down to single digits without input and refund claim.

On income tax, the KCCI said, despite efforts, FBR has not been able to evolve the right strategy, regulatory framework, adequate capacity and competence level of field formations to broaden the base for direct taxation.

The agricultural sector has been left at the discretion of provincial governments who are unwilling to tax the income from agriculture. Even a small piece of agricultural land is enough to evade income tax.

The size of industry in cities and towns other than Karachi are four times greater, but the tax collection is less than one third of the total collection.

Tax collection and compliance is limited mostly to urban centers while rural economy hardly contributes anything despite having at least 26pc share in GDP.

Published in Dawn, May 6th, 2015

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