Siddiq has been working as the Secretary for Revenue Division and Chairman FBR since December 24, 2010. Previously, he has served as Secretary, Finance Division; Secretary, Ministry of Kashmir Affairs & Northern Affairs, Chief Secretary and Principal Secretary Finance & Taxation for Punjab.
An Aitchisonian, Siddiq did his MA in English Literature from Punjab University, before completing his MSc in Social Policy and Planning in Developing Countries at the London School of Economics and Political Sciences. He became a public servant in 1984.
"You don't have to be an economist to know that the country's revenue woes are a consequence of a narrow tax base" says chairman Federal Board of Revenue, Salman Siddique speaking exclusively to BR Research.
"We have to bring all incomes into the net" says the veteran bureaucrat adding that the provinces should also move towards creating a more equitable tax system which does not lend favour to any sector over others. Discussing changes that have been made to the country's taxation system over the years, Siddique says "From a policy of complete enforcement we went into a policy of complete liberalism". He argued that neither of the two approaches is ideal as "a balance needs to be created between enforcement and facilitation".
He explains that recently introduced legislation has given the internal revenue department, teeth to bring tax dodgers to task. He also cites changes to the department's audit procedures that are expected to expedite the process of flagging discrepancies and misreporting.
Using a 19-indicator risk profiling criterion, FBR has started collecting data from various sources including the provincial governments, NADRA and PRAL and has already gathered names, national identity card numbers as well as contact details of 700,000 individuals believed to be dodging taxes.
Touting the success of the audits, Siddique claims, "notices have already been issued to 77,000 individuals out of whom 26,000 people have filed returns and Rs 356 million have been collected against a total demand of Rs 5.2 billion".
He explains that the newly inducted method of scrutiny will not be used for harassment as audits are now, "desk-ridden and based on data-based information". The process entails automatic flagging of suspicious variations in data reported by businesses and individual concerns. "Five to six percent" of the flagged entities are then audited and these are selected through a random ballot.
Risk-based audits are expected to deliver sound results in the recovery of withholding taxes. The FBR chairman lauded a recent Supreme Court judgement which according to him "held that while for the purpose of taxation, there is a time limit of five years for pressing charges, but for withholding tax where an agent or trustee has failed to deposit taxes collected on behalf of FBR; there is no time limit for prosecution".
While expressing confidence that these steps will "improve fair play in taxation" Siddique urges on the media and civil society "to keep mounting pressure for taxation of all incomes regardless of their sources".
PROGRESS ON REFORMS "You have to have your field organisation but you also need a central head that is organized and is backed up by technology and does not know who the tax payer is but is only acting in accordance with what the data is saying and then communicates to the field about any action or inquiries that are needed," says Siddique.
"If you make one central head at every regional tax office (RTO), then you have created a microcosm that can act any way it wishes to. The layering of authority and accountability is absolutely necessary" adds the FBR chairman.
Siddique contends that the field operations are imperative to communicate with tax payers and resolve their issues however "the analysis of aberrations at three different levels" helps create a better balance between enforcement and facilitation. Lauding the process of devolution, he expresses hope that "issues that crop up along the way will be resolved mutually" and that "in time there will be a handshake between federal, provincial and local levels for revenue collection".
Salman Siddique reveals that FBR intends to re-establish customs check posts on the outskirts of cities and towns to monitor the flow of goods. Border posts had been removed citing harassment complaints and security risks to government installations. Siddique also insists that there is a pressing need to reassess the valuation of properties for tax purposes. He recalls that previous reductions in stamp duty yielded positive results as registrations with sub-registrars jumped two-fold. He says that "a mechanism is needed whereby the provinces periodically revise values of property with the help of professional evaluators".
While he concedes that Pakistan Revenue Automation Limited (PRAL); which is a wholly owned subsidiary of FBR, has not progressed as initially envisioned; Siddique shares blame by saying that "the onus is also on us (FBR) as end users to desiderate".
He also points out that PRAL has enabled FBR to conduct real-time monitoring of returns and conducts audits on a month-on-month basis. He calls for greater co-operation between PRAL and FBR saying that 'you have the technology but you need the human interface within FBR to access relevant information on a timely basis".
AFGHAN TRANSIT TRADE & SMUGGLING
Salman Siddique hails the new Afghan Transit Treaty between Pakistan and its western neighbour as "a huge step forward" because it "provides a fiscal guarantee for all goods that are imported into Pakistan and transited to Afghanistan". He claims that investigations carried out by local authorities proved that 20,000 containers imported under the ATT agreement were in fact destined for local markets. "The current drive to identify what went wrong in the past has had a salutary effect on the present" asserts Siddique adding that "as a result of screening, the volume of trade dropped by half between January and June".
Chairman FBR reveals that a high-level commission has been constituted to plan out rationalisation of tariffs and duties. Favouring calls for reduction in import duties on tea, he said "the ostensible loss in revenue will be more than met by greater volumes that will come through legal channels" if rates are lowered.
While stressing that smuggling is a global phenomenon which Pakistan is also not immune to; he remains optimistic that "vigilance coupled with a sound fiscal mechanism" will ensure transparency in transit trade and discourage smuggling.
RECONSTITUTING POLICY MAKING "Bureaucracy will generally fail to deliver when an issue requires an out-of-the-box solution" says the veteran civil servant. He explains that civil servants are trained to implement the law and follow defined rules and procedures.
Salman Siddique contends that the paradigm of governance must shift towards an enhanced role of private sector in policy formulation. "Divide the work in a way that you have a bureaucratic tier and then you have a core decision making tier" he says. Siddique explains that this layer of decision makers must be made up of private sector stakeholders, public representatives, academicians and experts.
The FBR chairman lauds recent changes to the FBR act that have facilitated greater roles for the policy board of federal and provincial finance ministers; to be complemented by a committee of finance secretaries as well as the revenue advisory council. He elaborates that bureaucrats must be used in a regimented manner for operational tasks but "the larger thinking caps need to be put up in the ultra organisations for change and development with accountability".
"There will always be resistance to change and vested interests in the status quo" he cautions but adds that "it is time to create a balance between facilitation and enforcement".
EQUITABLE TAXATION "Taxation must have a level playing field" says the FBR chairman. He adds that "you can't have investors being made to flee from one sector to another just because the other sector happens to be in the domain of a different constitutional entity that is not at that point in time, levying any tax".
At present, the collection of some taxes is the domain of the federal government while others are collected by the provinces. In the case of the latter; FBR's ability to redress the taxation regime is limited, at best. However, "there are now institutional mechanisms in place for negotiations" highlights Siddique. He emphasises that the Council of Common Interests and the finance ministers' committee are platforms for developing consensus that must be used effectively to ensure that "the fruits of devolution are not frittered away".
Referring to the oft changing rate of turnover tax, he said that rates are lowered to "incentivise documentation" but "current needs for higher revenues" necessitate upward revisions in the rate. Salman Siddique contends that "the vision of the government is very clear that there needs to be a reduction in the multiplicity of taxes which has been demonstrated by elimination of special excise duty".
He maintains that tax rates for corporations will eventually be rationalised to levels similar to partnerships and other forms of business enterprises while federal excise duty will also be phased out in three years. However he points out that "right now we are in dire need of revenues so these steps will take three to five years" for implementation.
Siddique admits that higher taxes act as a disincentive for tax compliance and also discourage investments by the private sector. "Ultimately, there should be just two taxes; income tax and sales tax" he sums up.
NEXT YEAR'S TARGET & BEYOND FBR has come under fire from critics who assert that revenue collection during FY11 fell short of the revised target of Rs 1588 billion. The target of Rs 1955 billion for FY12 has also been dubbed "unachievable" by many analysts.
However, Salman Siddique insists that if "enforcement and collection efforts are stepped up from the first month instead of the usual last minute efforts to shore up numbers", this goal will be achieved. Highlighting the strategy for enhanced collections he points towards disputed collections to the tune of Rs 131 billion; that are currently awaiting orders from courts.
"We can expect at least Rs 20 billion from these cases if efforts are stepped up by FBR" he says adding that similarly, "Rs 101 billion are stuck up in illegal input adjustments and other malpractices which can be brought to the national kitty with some extra efforts". He also foresees the collection of an additional Rs 75 billion under the amended sales tax. Salman Siddique points out that the key to sustained improvements in recovery of overdue taxes lies in creating instalment plans instead of waving off dues in return for partial payment.
Interview by Ali Khizar & Mobin Nasir
An interview with
SALMAN SIDDIQUE
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