Reforming tax system linked with staff accountability

LAHORE: Resistance to economic reforms is a norm in Pakistan as people with vested interests do not want fair practices to prevail, which will deny them easy money they generate currently. They are shy of accountability and abhor accountability.

The Federal Board of Revenue (FBR) is not an angel organisation and audit of the accounts by its staff might create some genuine concerns, but audit of the accounts through private chartered accountant firms should be acceptable to all. But even this is vehemently opposed by them.

During the Shaukat Aziz era, it was agreed by all businessmen that anyone could file tax returns through voluntary tax assessment scheme. The only condition was that 25 percent of the tax returns filled would go through the audit. This way every tax filer would be subject to the audit in the four years. This was a prudent move, but the audit never took place due to stiff resistance from the businessmen.

The businessmen also oppose attachment of accounts of those who fail to timely file thee tax returns. They do not want tax officials to conduct raids on shops or offices.

There is no harm in handing over the accounts to the tax officials if you have nothing to hide. Markets are added with smuggled items but the customs staff is forbidden to conduct raids. These raids are frequent in neighbouring India where the smuggling is under control. The stance that smugglers should be nabbed at the border is flawed. Law does not allow selling illegal imports and there should be no resistance against these raids.

Sometime the FBR does wake up to correct the evaluation of imported goods. Recently, it increased the valuation on imported garments to $3.3 per piece. This is merely Rs317 per piece. It is a common sense that no imported garment could be worth less that Rs317. The garment importers lodged strong protest because earlier all the readymade garments were cleared at $4.4 per dozen. This means that 12 pieces of garments were valued at Rs465 or Rs38.75 per piece. Can anyone imagine an imported readymade garment to cost Rs38.75? It might not even cover the cost of accessories. The importers were happy at that highly unrealistic evaluation.

One can only hope that the Pakistan Customs will keep the currently evaluated price of the imported garment intact. It will certainly deprive the corrupt officials of the money that they used to generate through under invoicing. This practice is crowding out the local textile industry from the domestic market.

Pharmaceutical companies in Pakistan are strongly protesting against the legislation in the Punjab that treats producers of substandard and spurious drugs. The punishment for both offences is the same. Both spurious and substandard drugs are ineffective against the ailment they are meant for. The producers of both the types ought to be punished.

Earlier, there was a jail term for producers of spurious drugs and fine on substandard medicines.

The best the Punjab government could do is to increase the punishment for producers of spurious drugs but those marketing substandard drugs could not go scot-free. The goods law passed in the Punjab should be replicated in other provinces as well.

The tainted image of the FBR perhaps is one of the main reasons for giving credence to the opposition to reforms. Many malpractices occur with the connivance of the tax officials. There were instances when the businessmen convinced the authorities that massive under invoicing was rampant in imports of tyres. The authorities responded to the concern by increasing the duty on tyres by five percent.

Now everyone knows that increasing duty is not an answer to under invoicing. If a tyre is imported at 10 percent of its original value then even 50 percent duty on that tyre will have nominal an impact on the importers value.

The answer lies in increasing the valuation of the product to the realistic levels. This they do not do because doing so will deprive them of the gratification money they get from the under invoicing mafia. Same is the case with bringing traders into the tax net.

The corrupt tax officials have created a fear among them about the draconian effect of documentation. To prove their point, they cite the example of several honest taxpayers who are issued inflated tax demands every year. They do not tell that almost all of them get full relief in the subsequent appeals. Reforming FBR is linked to accountability of its erring officials.