This is not the first time that the government has hoodwinked International Monetary Fund (IMF) and the public at large. FBR has a long history of overstating revenue collections by manipulating the figures. Way back in 1999, tax bureaucrats inflicted shame on us by gross misreporting of data to the IMF. Subsequently, a commitment was made to the IMF to review fiscal data from financial year 1989-90 onwards. The data compiled for fiscal years 1994 to 2000 confirmed that tax revenues were inflated. The data manipulators of FBR showed higher tax collections through fudging of figures and the nation had to pay a heavy cost for it (not only in terms of fine paid to the IMF) but by further tarnishing of image in the international community that nothing is transparent in this country.
FBR never discloses in its statements how much undisputed and established refunds remain unpaid on the closing date of the fiscal year, which must be subtracted from the gross revenue receipts to portray the correct net collection. It only mentions the actual refunds issued, whereas accrued and ascertainable liability [determined refunds] should also be taken into account. Blocking of refunds to meet targets is an undeniable reality. This fact has been admitted by FBR before the Standing Committees of National Assembly and Senate as well as Public Accounts Committee. Unfortunately, no action has ever taken, thus, encouraging FBR to keep on showing "brilliant performance" through manipulation.
One wonders if the IMF and other donors are so naïve, but they have their own intentions to look the other way as their main interest is to get their money back. This has distorted the image of the entire tax machinery-those who genuinely achieved their budget targets have also lost their credibility.
The real dilemma of Pakistan is that mighty segments of society do not pay personal income tax due from them, courtesy permanent amnesty scheme available in the Income Tax Ordinance, 2001 in the form of section 111(4). FBR officers say they are helpless as political elite is not ready to withdraw it. Those who pay their taxes honestly or have no choice but to pay, mainly salaried persons, rightly protest as the rich and mighty openly and brazenly decriminalise their untaxed wealth and incomes by just paying 2%-3%, to local money exchange companies that arrange "remittances" through normal banking channels. One wonders if State Bank of Pakistan, FBR, Federal Investigating Agency (FIA), or even IMF, are not aware of it or they purposely ignore it!
People in Pakistan ask why they should file tax returns when their president, prime minister, ministers, governors and elected representatives pay laughable amounts as tax-only tax deducted on emoluments received from state. Ex-President, Asif Ali Zardari, before his election on September 6, 2008 got $60 million unfrozen in Switzerland, but did not bother to tell the nation how much tax was paid on this colossal money and why it was lying abroad. Shahbaz Sharif promised to the nation before elections in 2013 that after coming to power their government would bring this money back. However, even in 2015 this remains an unfulfilled dream.
At the time of taking the oath of President's office, Asif Ali Zardari did not declare his assets and liabilities with evidence of payment of taxes where due. The same is true with all the leading politicians, including Prime Minister Nawaz Sharif that they have assets beyond means inside and outside the country. They need to be probed by a high-powered judicial commission and be declared ineligible for politics if fail to explain the sources and reasons for non-payment of tax on these assets. There should be a public campaign forcing the members of parliaments, public office holders, high-ranking public servants, generals and judges to justify their lavish lifestyle vis-à-vis tax declarations. Any politician, who is a tax delinquent or has been beneficiary of any loan write-off, should be debarred from contesting elections. These would be the real election reforms that interestingly nobody is asking for in Pakistan.
It is shocking that only 3,663 persons declared income exceeding ten million rupees in tax year 2014, out of a population of 195 million. Five million rich individuals of Pakistan-comprising about 2.5% of total population-alone should be paying income tax of at least Rs 3 trillion. FBR received only 856,229 returns in 2014 whereas this figure was 1,443,414 in 2011! FBR's failure is evident from the fact that less than 600,000 business returns were received, whereas total number of commercial and industrial connections alone is four million, and all of them are subjected to compulsory withholding taxes along with electricity bills.
In 2012, the Indian government facing the same problem with civil services issued a letter by which a detailed scheme for removal of "dead wood" was formulated. The letter pointed out that a few members of the All-India Services had become mere passengers in their post. They became either stale or listless lacking creativity and thus failed to achieve results. The letter said that this situation resulted in the operation of the "Peter Principle"-every man rises to the level of his incompetence from where he can go no higher. The scheme provided for the identification and compulsory retirement of such employees so that the cost to the exchequer was saved. It is high time that our government should also follow this scheme-removal of "dead wood" in bureaucracy has become inevitable.
The appointments of Chairman and members of FBR should be through a public hearing by Select Committee of both the houses of Parliament and not on the wishes and dictates of the ruling political party headquarters. All kinds of loopholes in tax laws should be plugged by proper legislation after thorough public debates and democratic processes. The Parliament should devise a rationale and workable tax policy after taking inputs from all the stakeholders and experts in the field. There should be zero tolerance in respect of enforcement of tax obligations across the board without any fear or favour. Tax collected should be spent on the welfare of the masses and not on the luxuries of the mighty segments of society.
FBR must be insulated from outside pressures and freed from bureaucratic controls-this is possible only if converted into National Tax Agency for centre, provinces and local governments, run by an independent Board of Directors comprising professionals. Through consensus and democratic process, all the parliaments should enact a law for establishing autonomous National Tax Agency. It would facilitate people to deal with only a single Authority rather than multiple agencies at national, provincial and local levels. Such Agency alone can ensure that taxes wherever due are collected without any exception. Once an autonomous National Tax Agency, headed by an Independent Board of Directors, is established, all the governments would certainly respect its autonomy. Since this Agency would not be a government department, it would collect taxes for all three tiers of State-centre, provinces and local governments. After charging an agreed collection fee, it would distribute the balance amount to the respective government.
(Concluded)
(The writers, tax lawyers and partners in Huzaima, Ikram& Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)
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