Sudden tax recovery

EDITORIAL: The President has issued an ordinance empowering the Federal Board of Revenue (FBR) to immediately/suddenly recover taxes from taxpayers’ moveable/immovable assets and seal their business premises after a decision of the high court without further notice.

In addition, the ordinance allows the posting of inland revenue officers on business premises to monitor production and services. The objective of the ordinance is fairly obvious: to minimise the shortfall of 704 billion rupees during the first eight months of the current year (with analysts projecting a one trillion rupee shortfall by the end of the current year) from what was targeted in the budget, a target agreed with the International Monetary Fund (IMF) team under the ongoing 7 billion dollar Extended Fund Facility programme.

It is no doubt being argued in the corridors of power that this would facilitate reaching the second staff-level agreement, a necessary prerequisite for the release of the second tranche, and reduce the need to set an even more unrealistic revenue target in next year’s budget.

While acknowledging that there is a parallel illegal economy operating in this country with a large number of businesses refusing to file their returns due to a trust deficit sourced to the penchant for FBR officials to be extremely susceptible to bribes this latest ordinance has raised concerns amongst the business community pertaining to the status of ongoing/pending appeals given that the ordinance undermines their legal rights, with the additional fear that private sector units may face scrutiny from provincial and federal officials who are not directly accountable to the FBR.

This should be a source of serious concern for our Finance Ministry officials who, in their April report titled Economic Update and Outlook admitted that “Large-Scale Manufacturing (LSM) remains under pressure, with output declining by 1.9 percent during Jul-Feb FY2025, compared to a 0.4 percent contraction last year. In February, LSM registered a month-on-month decline of 5.9 percent and a year-on-year decrease of 3.5 percent.”

Business Recorder has urged several administrations, past and present, to undertake reforms in the tax structure by shifting the onus of raising revenue from existing taxpayers to those who remain outside the tax net, including the rich farmers, the real estate operatives, the traders, and the aarthis, the middlemen, who raise prices of perishables at will to maximise their windfall profits.

While the provincial governments have legislated the levy of agricultural income tax, as per the IMF condition, which stipulates the tax due to the income of the landlord, yet serious doubts about its implementation remain particularly the process by which the exact income of the landlord will be determined.

The heavy reliance on indirect taxes remains and in the current year the government raised taxes on not only the salaried, which led to a decline in the quality of life of the lower middle to middle income earners, but began raising the tax imposed in the sales tax mode, on products and services, an indirect tax, dishonestly credited under direct taxes (ability to pay) by the FBR and in the budget documents. This explains why the poverty levels are rivalling that of sub-Saharan Africa at 42.4 percent as per the World Bank.

To conclude, delays in taking action are symptomatic of our administrations to the detriment of the general public. The deferral of all reforms (other than to trim the intransigent energy sector circular debt by borrowing from banks and passing on the interest payable to the consumers — an action that was taken in June 2013 which led to raising tariffs and is reportedly under serious consideration at present) is the root cause of the current fragility of the economy.

One year after it took over the reins of administration, structural reforms are still awaited and the burden of sustained inefficiency in all areas of government operations is being borne by the general public indicated by the persistent raise in current expenditure.

Last year it was raised by 21 percent and one can only hope next year it would be kept at the current year’s level though ideally it should be reduced by one to two trillion rupees to match not only the revenue shortfall this year but also to accommodate higher outlay for Benazir Income Support Programme with the objective of reducing our disturbingly high poverty levels.

Copyright Business Recorder, 2025