LAHORE: Pakistan tax system reforms carried out under Tax Administration Reform Project (TARP) during 2001-2010 were overwhelming, expensive, and a failure, said the Federal Board of Revenue (FBR) sources. They said a consensus does exist in the FBR that the reform program under TARP, assisted by the World Bank through a total budgeted allocation of US$149 million - disbursed between 2004 and 2011, left the tax system more gridlocked, retrofitted, and incapacitated than before to generate both sufficient and healthy revenues.
At the beginning of 2010, they said, a slackening economy, sky-rocketing oil prices in the international market, launch of the operation Zerb-e-Azab in Federally Administered Tribal Areas to root out terrorism, and below par revenue effort, resulted in an exploding fiscal deficit, which, in turn, led to an increased demand on the tax administration for ever more revenues pushing it into a brute number-chasing machine. This is how the TARP-driven tax reform program was never implemented full-length. Resultantly, the reform process reversed and periodic targets had been turned ever more frequent, i.e., from quarterly to monthly, from monthly to weekly, and of late, from weekly to daily.
According to the sources, former finance minister Ishaq Dar had repeatedly claimed to have fixed tough targets for the revenue administration while madly pursuing them on "beg, borrow, or steal" basis. In pursuance of brute revenue targets, said the sources, the entire tax system had been exposed to a wider withholding regime, which w3ll outs for the system, economy and the society.
They pointed out that the tax administration had become a tail-eating snake in that the greater the amount of revenue it generates, the more harm it causes to the economy. The sources said TARP's flag-ship initiative was the creation of three LTUs in Karachi, Lahore, and Islamabad.
The data shows that the LTUs' contribution to total inland taxes conservatively hovering around 43 percent in 2008 touched the peak point of 65.4 percent by 2012. In fact, the LTUs' contribution touched the 60 percent mark in 2009 and for the next four years stayed above it, before slipping down in 2014, and falling down to 55.5 percent in 2016, slightly recovering in 2017 to 58.5 percent.
This is a vivid evidence of the fact that not only reforms were not implemented with full thrust and integrity but also they lost the momentum well before attaining the required trajectory intended and required.
It may be noted that LTUs' revenue curve starts to pick up around 2008, when their contribution reached 279 billion out of the total inland tax collection of Rs647 billion. The LTUs' revenue curve attains the highest water mark in 2012 when its contribution at Rs802 billion constitutes 65.4 percent of the total inland taxes to the tune of Rs1227 billion. Then on not only that LTUs' revenue curve tends to flatten out but also that the gap between total inland taxes and LTUs' contribution curves starts to widen incessantly.
It is interesting to note that while the (exponential) trend line of the total inland taxes curve broadly follows the actual numbers which of the LTUs' contribution curve first lags behind between 2008 and 2013, and then 2014 onwards overtake the actual number line.
A simple arithmetic calculation results in a minimum loss of Rs148 billion if worked out on the mutual ratios attained in 2012. This is the result of a botched, failed, and half-way abandoned tax reforms, they asserted.
Copyright Business Recorder, 2020
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