From: Razi Ahsan
Advocate High Court & Tax Consultant
A.K. Shamim & Co – Law Firm

Across the Globe the Government’s role is critical in responding to the novel Coronavirus outbreak. Legislators are working to respond as quickly and effectively as possible, matters like public health and assistance to those who are in economic distress are the most urgent issues. The tax policies will play a vital role citizens needs such laws that could provide the relief and ultimately could cover the costs.

In Pakistan unfortunately even at this time most legislatures are striving to have an aggressive budgets in place. Whereas globally In support of economy countries have implemented emergency measures. In national Interest It is imperative for us to revise our Tax structure, policies and it’s enforcing mechanism.

Legislative and Fiscal Measures needs input from all stake holders these cannot be decided in isolation, especially in the current Pandemic situation few experts cannot decide on their own. The Global model is there as benchmark where the main focus is to providing tax relief to the people and companies that are most affected, until the emergency abates.

UK announced the tax relief which includes but not limited to deferral of certain value added tax (VAT) and Income Tax payments. HM Revenue & Customs (HMRC) also has allowed businesses affected by COVID-19 to defer payment of other taxes under “time to pay arrangements.”

The United States Internal Revenue Service (IRS) announced Tax relief measures. They suspended the due installment Payments, relieve in provisions for making new monthly agreements, have suspended the enforcement for delinquent return filling for Tax debts, have extended tax deadlines etc.

Even the Dubai government announced an economic stimulus package to enhance liquidity, which includes refund of 20% of the customs fee imposed on imported products sold in Dubai, 90% reduction of fees imposed on submission of customs documents, “freeze” on the 2.5% market fees levied on all facilities operating in Dubai, Reduction of “municipality fees” imposed on sales at hotels from 7% to 3.5%, freeze on “fees” charged for the sale of tickets, issuance of permits and other government fees related to entertainment and business events, reduction in water and electricity bills by 10% and reduction in deposits paid for water and electricity connections by 10% They have also changed the bank guarantees and cash requirement rules.

Pakistan Government should consider tax relief measures because the lockdown and health issues are creating a substantial economic shock. Such taxes that require regular payments will impact the liquidity of businesses and households. The governments should consider fiscal relief as a way of minimizing the economic impact from the health and general crisis.

The policymakers should hue to the following principles:

1. Tax relief should be broad-based.
2. Tax relief should be in keeping with good long-term policy. Distorting markets today will undermine the long-term recovery.
3. Using refundable tax credits today should be designed to bring forward future credits or deductions.
4. Policymakers should also use this opportunity to fix distortive tax policies that could impede recovery efforts.

On positive note It is worth emphasizing that recently the government has closed tax audit cases that had been automatically selected from 2014 to 2017 due to the failure of taxpayers to timely file tax returns and pay due taxes. The Federal Board of Revenue (FBR) has closed over 310,000 or more than half of the total opened 600,000 audit cases. Individuals, associations of persons, and companies are beneficiaries of the FBR’s decision that is rooted in its incapacity to go after hundreds of thousands of people. The FBR lacks resources to effectively audit 600,000 case but that decision as precedent can be relied in financial emergency

The SMEs in Pakistan generally run on low liquidity which is the major concern for the small and medium enterprises many small shopkeepers. Retail outlets usually maintain their businesses not on stable cash flow but on their enterprising skills. They use to manage the credit cycle with their suppliers. Survival of such Businesses is doubtful, they will certainly face difficulties in paying regular salaries, rents and other fixed cost in the event of an extended shut-down

The Industrial sector (both medium and large industries) have no exception they are not expected to maintain an unlimited and inexhaustible Cash flow. Businesses depends on the circulation of money and in the event of an extended lock-down, even the major industrial undertakings may have to opt for lay-offs

The industry or the business establishment considers the employee an asset and is never interested to lay-off a long serving established worker but it is under dreadful circumstances that such undesirable decisions are taken.

The government has to seriously engage into a Problem solving discussion with the Business Community to find answers they must look into the options of revising our Tax structure, policies and its enforcing mechanism otherwise due to shut down of Businesses and layoffs the tax collection will be Naturally low.