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EDITORIAL: Earlier this week, the information minister Fawad Chaudhry said that FBR (Federal Board of Revenue) couldn’t recover Rs 3,000 billion due to ongoing cases in courts where businesses have obtained stay orders.

The issue of getting stay orders by businesses against tax liabilities and other areas (such as against the orders of Competition Commission of Pakistan) is not new. However, there are two sides to every coin. There are several incidents where FBR is probably exaggerating the claims or has made tax demand in excess of the legally due amount.

That the procedure laid down by the FBR for taxpayers who wish to contest their demand of tax is extremely cumbersome and unfairly skewed in favour of the taxation machinery itself. Consider: the taxpayer is required to file an appeal before the appellate authority of the FBR itself, i.e., the Commissioner Appeals.

These officers are employees of the tax department and shuffle between the execution/collection and appellate positions within the FBR. Their career path is within the FBR and they are usually hesitant to provide relief to the taxpayer unless there is something grossly wrong with the tax demand.

Therefore, this first stage or forum of redress is a mere procedural exercise as far as the taxpayer is concerned. The next stage is an appeal before the appellate tribunal and thereafter the high court. The predilection of the tax officers to seize bank accounts of taxpayers and recover the tax demand compels the taxpayer to move a high court with a view to insulating himself against taxmen’s handedness.

The career trajectory of FBR officials obviously depends on their performance, which is largely measured by the tax demand he or she has created as part of a certain tax collection target in order to ensure positive ACRs (Annual Confidential Reports) about themselves. Even the officers carrying out the task of ‘Audit’, too, face immense pressure as they are often ‘required’ to create additional demand over and above the demand created in assessment. There exists rampant tax evasion besides under-reporting of income or over-statement of expenditures. Taxpayers are known to have more bank accounts than those they have declared in their tax returns. That the money in circulation is of phenomenal magnitude is a fact that has found its strong reflection in high level of cash transactions within the economy that are predominantly not reported and form part of the informal economy, which is not within the tax net.

Thus, there are problems on both sides. The issue is of delays in courts is due to two broad reasons. First, the large number of cases due to unreasonable tax imposition. Second, this creates a huge backlog that the judiciary is unable to cope with because of the limited number of judges. The answer therefore lies in finding a pragmatic modus operandi that would obviate the need for the taxpayers to rush for seeking indulgence of the courts and for that to happen FBR would have to refrain from its high-handed tactics such as attaching a taxpayer’s account. The element of undue stays would be there as well.

It’s a mixed bag. The truth of the matter is apart from multinational and big corporate, businesses usually run two account books. The tax collector usually knows that. However, the officer doesn’t have any evidence. The officer usually deploys his discretionary power and hits businesses with higher tax liability. And the businesses take the stay order route.

Copyright Business Recorder, 2022

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