The FBR released its FY19 revenue yearbook a few days ago. As is the case each year, the revenue yearbook is a motely mix of content that neither serves as a great postmortem analyses report, nor a very useful statistical guidebook.
For instance, the report says that during FY19 the FBR missed its collection target by Rs321 billion, when compared to its second revision of the original target. It also spells out a few half-explaining reasons about why its collection fell short by Rs321 billion under broad tax heads (see graph). But it does not tell its readers why it missed its original target by a mammoth Rs606 billion; and whether the annual exercise of two or three revisions in targets is a product of misplaced ambition or poor forecasting skills.
Similarly, the report tells us the amount of direct tax collected under direct mode such as ‘on demand’ and ‘with return’, as against the tax collection under indirect mode such as WHT and advance tax. But it doesn’t explain why collection of direct taxes in direct mode fails to grow (as percentage of total direct tax collection) since FY16.
This begs the oft repeated question that why does FBR need such a big team, if businesses are collecting and depositing direct taxes in indirect mode, whereas total direct tax collection itself fell to 37.76 percent in FY19, from 39.9 percent in the preceding two years. That’s not what the PTI had promised.
Here is a little trivia before we segue into what needs to be done to make these yearbooks meaningful. Every yearbook since FY16 has had the following paragraph copy pasted in ditto: “The efforts of the research team of Strategic Planning Reforms & Statistics Wing are commendable in bringing out this issue of Revenue Division Year Book. However, any suggestions and comments for the improvement of this publication will be highly appreciated.” Slightly changed versions of this statement are copy pasted in the previous years’ reports as well.
But for FBR, these are words without meaning, year after year. The only thing that has changed this time around is that these words are now undersigned by Shabbar Zaidi, the first private sector taxman at the helm of FBR, and a man who has been spearheading the reforms of late, even if some aspects of those reforms do not enjoy consensus. So there is some hope that perhaps next year’s yearbook will be substantially better.
The first thing that Shabbar must order to this effect is to set up an online data portal where data is reported for public dissemination on weekly, monthly, quarterly, annual basis, as does the central bank through its dashboard.
These datasets should follow international standards. For instance, sales taxes and customs duties should be recorded and reported in broad HS-code categories. Likewise, income taxes should be recorded and reported in ISIC-4 classification to allow for like for like comparisons that can also feed into FBR’s own tax gap analysis.
The reporting of these datasets should be classified by city and FBR’s administrative units. The tax body would do well to reconcile its data with registered companies, partnerships and association of persons, and classify each of those as per standard SME definition.
A good data portal should do away with the need to report statistical appendices in FBR’s yearbooks. The yearbook instead should tell its readers about the qualitative aspects of taxes such as the reasons behind FBR’s reforms of both policy and administration; the regulatory or administrative milestones it achieved or did not achieve and why; the planned targets, milestones and timelines for the next year; the tax gaps across the economy; and also perhaps knowledge gaps faced by FBR that researchers in the policy space could address.
As an accountant, Shabbar knows well the importance of disclosures, standards and directors’ reports. It’s about time to pour that wisdom into FBR’s data collection and reporting; it’s good for both politics and economics. It may also help towards a data-backed collective understanding of Pakistan’s tax problems, and that in turn may create a wider buy in for reforms.