EDITORIAL: It’s about time somebody, in this case the Auditor General of Pakistan (AGP), took “serious notice” of the Federal Board of Revenue’s (FBR’s) habit of borrowing large amounts of money from Multinational Corporations (MNCs) towards the end of the fiscal year to beef up its books and meet its budgetary revenue collection targets.
That way everything looks good on paper and the finance ministry can give itself a pat on the back for achieving its revenue target, but then problems begin to show when resources have to be distributed among provinces under the National Finance Commission (NFC) Award.
This matter was raised, yet again, during a meeting of the sub-committee of the Public Accounts Committee (PAC) held to examine the audit report for years 2010-11 to 2017-18 of the revenue division. And while examining a particular case involving a refund of Rs16.9 billion to five companies in 2011, it turned out that FBR paid refunds in three cases although none were claimed.
Also, amounts paid in two cases were in excess of refunds assessed under section 120 of the Income Tax Ordinance, 2001. This, as the FBR chairman admitted, was because of the practice of borrowing money in June to “put in revenue collection to show (the) budgetary target was met”, before returning it in July under the refund head. He also assured the committee that this practice was “discontinued” about two years ago.
Since such decisions are taken at the prime minister and finance minister level, as the FBR chairman pointed out, and this practice has had an adverse impact on distribution of funds to provinces, it can safely be surmised that the highest offices in the land have been complicit in financial jugglery to give the impression that tax collection was on target, even at the cost of compromising resource distribution to provincial governments.
And as much as one would like to take the FBR chairman for his word that things are no longer done in that way, there should still be a proper inquiry to determine how long this practice went on, who authorised it, and what impact it had on resources transferred under the NFC Award.
Revenue collection might not have been the headache it is now if authorities had been looking in the right direction all these years. No doubt a lot of time and energy went into cooking up out-of-the-box solutions that artificially inflated FBR’s tax receipts; and in the process hurt the Board’s capacity to do its main job instead of improving it.
That’s one reason the government now has the International Monetary Fund (IMF) breathing down its neck to raise tax revenue even if it squeezes taxpayers quite unfairly. Yet this matter, of FBR regularly borrowing from MNCs, is not just about revenue collection. It also relates to the provinces having their fair share, which in turn can make all the difference in terms of their performance and the quality of lives of ordinary people.
The argument that Pakistan’s chronically low tax-to-GDP ratio mandates urgent FBR reforms is as old as time. And while reports about the Board looking here and there to present a false picture of revenue collection hit the headlines now and then, not much has been seen in terms of those necessary reforms that were promised.
Even now, as the government boasts about meeting various targets, it’s mostly done through indirect taxes; that, does not say much about FBR’s own performance at all. Needless to say, of course, that the sooner this trend is made to change the better for the health of the economy as well as the financial health of people.
Copyright Business Recorder, 2022