Revenue degeneration The FBR’s Year Book 2012-2013 proves beyond any doubt the inefficiency of the revenue collection agency of the state By Huzaima Bukhari & Dr. Ikramul Haq The Year Book 2012-13, released by the Federal Board of Revenue (FBR) on September 23, 2013, admits miserable performance during fiscal year 2012-13 — it collected Rs1939 billion against the original target of Rs2381 billion and even could not meet the three times revised budget of Rs2007. The shortfall of Rs442 billion pushed fiscal deficit to 8.8 per cent of GDP forcing the government to resort to further regressive taxes and begging before International Monetary Fund (IMF) and other lenders. The collection was merely Rs57 billion more than what was collected in 2011-12 — this 3 per cent growth should be read as minus 6 per cent as average inflation rate during 2012-13 was 9 per cent. In his ‘Foreword’ to the report, Tariq Bajwa, new Chairman of the FBR, while noting with concern that original as well as revised targets were missed by a wide margin, solicited comments of the public on the dismal performance of the FBR. This is a positive move and a healthy sign — in earlier reports, self-criticism and quest for improvement were totally missing. The latest report of the FBR does not mention why the ex-chairman and many others received ‘honourariums’ (six months’ salaries) for their pathetic performance. There is a consensus that over the period of time, the FBR has become an institution wrought with corruption and inefficiency. The frequent occurrences of mega scams — fake refunds, tailored amnesty schemes, flying invoices, under invoicing, excessive payments of export rebates, just to mention a few — have increased manifold confirming the existence of a strong mafia. The fiasco in fiscal year 2012-13 started with the political posting of Ali Arshad Hakeem as the FBR Chairman on July 11, 2012 under the direct command of former president Asif Ali Zardari. Though it was declared unlawful by Islamabad High Court, but by that time, he succeeded in destroying the collection strategy for 2012-13. On assumption of charge, he made some tall claims of surpassing the revenue target of Rs2381 billion by using “extraordinary managerial skills”, “innovative IT tools” and “amnesty schemes”. All these proved to be just self-praise as revenues nose-dived during his tenure. Fake refunds of billions of rupees were issued under his chairmanship. The same scenario continued under the caretaker setup. Genuine refunds were blocked unlawfully and fake were issued causing loss to exchequer. The Federal Tax Ombudsman (FTO) categorically warned the FBR to be “careful and do not resort to blockade of refunds.” But they did not heed his advice as usual. It should be remembered that in 2011, the FTO took suo moto notice [complaint number 982/2011] of figure fudging by the FBR through unlawful “borrowing of funds” in July 2011 by the Large Taxpayer Units (LTUs) from some companies to show higher collection but no action was taken against the officer involved in this crime despite the matter went to Public Accounts Committee. This undesirable act continues even today — the FBR’s officialdom thinks “nobody can touch us as rulers being tax evaders are in our pockets”. There is no effective check of the government or the parliament over the FBR. In India, every year a comprehensive report is prepared by the Public Accounts Committee of the Parliament where the performance of tax machinery is critically examined and suggestions for betterment are made — latest report is available at itatonline.org/info/index.php/parliament-committee-hauls-up-dept-for-adventurous-assessment-orders/. Time and again, different chairmen of the FBR admitted before the Standing Committee of Parliament on Finance that tax reforms, funded by foreign donors since 2004, have failed to yield desired results. At the end of the five-year Tax Administration Reforms Programme (TARP), extended for another year, there was unprecedented decline in tax-to-GDP ratio — from 12.5 per cent in 2002-2003 to 8.2 per cent in 2010-11. This was one of the lowest in the world — confirming apathy of the ruling classes who, instead of paying due taxes, thrive on the national resources meant for the welfare of the weaker segments of society. Even the new FBR Chairman is not ready to admit that Pakistan’s real revenue potential is much higher than lowly targets fixed in the budgets every year The FBR’s Year Book 2012-13 shows that major burden of collecting taxes is shifted on withholding agents, who are performing the essential state function without any reimbursement of cost — they incur exorbitant expenses for performing this onerous task by employing people and providing them necessary infrastructure. The FBR has conceded in Year Book 2012-13 that 80 per cent of taxes are being collected by the withholding agents. The corporate houses in general and banks in particular have virtually been converted into ‘FBR Collection Houses’. Withholding agents incur substantial cost for complying with tax collection provisions on behalf of the government (man-hours, infrastructure use and stationery, just to mention a few) and then face penal actions for alleged non-withholding of taxes. Corrupt officials are making lots of money encouraging unscrupulous elements not to deposit the withheld tax in the government treasury and instead, share the same with them. The FBR’s book contains the same lies that its bosses keep on repeating in public and before Standing Committees of Parliament that “our tax base is narrow”. They claim that only those who file returns are taxpayers. In fact, millions are paying income tax at source. The total number of income taxpayers alone is over 50 million — there are active 50 million mobile users who pay 15 per cent income tax both on postpaid and prepaid connections, though number of return filers by business people is less than 500,000. Had the FBR allotted National Tax Numbers (NTNs) and issued notices to mobile users paying Rs60,000 or above as annual bill, it could have proudly said to have registered taxpayers of at least 15 million. Our tax base in not narrow, number of tax filers are pathetically low for which entire blame rests with the FBR. If the new chairman is really serious in revamping the FBR and tapping the real tax potential of Pakistan, he must consider the fact admitted in Year Book 2012-13 that there was 31 per cent decline in 2012-13 in tax collected by the FBR officials — this alone reflects their own efforts compared to tax coming through withholding regime (59 per cent) and voluntary payments (33 per cent). Out of total collection of income tax at Rs739.7 billion, the collection on demand was Rs89 billion — only 12 per cent of total collection, whereas in 2011-12 it was Rs130 billion or 17.6 per cent of total collection. It proves beyond any doubt the inefficiency and ineffectiveness of the FBR as revenue collection agency of the state. The writers, tax lawyers, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)
Posted on: Sun, 29 Sep 2013 02:19:32 +0000