Picking up from this columns yesterdays commentary on Competition Commission of Pakistans policy notes, here is something that the Commission might want to inquire into: the SRO culture.
An abbreviation for Statutory Regulatory Order, the SRO is simply an instrument of governance but its excessive and often unjustified usage is rather alarming.
Late last year, the Public Accounts Committee (PAC) was informed that the SRO culture cost about Rs650 billion in the form of exemptions and concessions. The total amount under this head, according to latest economic survey, total around Rs900 billion in the last five years.
Of the many worrisome factors is the fact that some of these SROs are company specific rather being sector-specific, which according to one senior economist goes against the spirit of the constitution. For instance, one such SRO was issued in January 2012.
The SRO 57(I)/2012 had reduced turnover tax by 50 percent--from 1 percent to 0.5 percent only for Pakistan International Airlines (PIA). Industry sources say that this tax relief gave an advantage of about Rs500 million to PIA during FY12. In addition, this made other airlines uncomfortable because of unequal treatment given.
While this impact of the SRO was later reversed as the tax was subsequently reduced in 2012 for other airlines as well, there are hundreds of SROs that need to be reviewed.
The need for review comes on at least two accounts: a) for their inconsistencies with previous tax laws and orders that create confusion for tax payers; and b) for their inconsistencies with the overarching competition thought.
As the matter stands right now, more than 4,500 SROs have been issued over the last few years--the bulk of which were issued in the Musharraf years. Here, at the risk of oversimplification, a crude analysis warrants attention.
BR Research took all the SROs related to income tax, sales tax and FED released on Federal Bureau of Revenues website and plotted them in line with the last few regimes. The finding of SROs per regime years is shown the graph.
Understandably, the number of SROs does not matter as the fiscal impact of one SRO. Plus, in Musharraf years a number of merging exercises were reportedly taken where many SROs were merged into one--which is why the Musharraf era SROs appear inflated.
Another reason why Musharraf era SROs are higher in number is because the economy was booming in those years, which meant there was enough money and fiscal space based on which businesses could throng to FBR counters and ask for favors.
However, leaving unnecessary politicking aside, the important thing to note is that FBR is not as much to blame for SRO culture, as much is the Finance Ministry and the Economic Co-ordination Committee of the Cabinet.
While its probably too much to expect the current regime to reform the SRO culture, given the shortcut budgeting tactics it displayed in June, one would hope that the CCP publishes a detailed policy note on the subject which can then hopefully be used as a reference for petitions against the government.
Issuing a policy note on taxation lacunas may be CCPs immediate mandate, but it will surely do a lot of public good.
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