Economists hail FBR collating bank account details

LAHORE: Economists on Friday expressed in favour of the permission to the Federal Board of Revenue (FBR) to collect bank account details to bring evaders into the tax net.
They, however, said some businessmen are against this.
“Reforms that bring transparency are always resisted tooth and nail by most influential segments of society, who are beneficiaries of the system that assists them in evading government levies,” said economist Asif Ali Shahid. He regretted that the FBR was avoiding implementing the SRO, perhaps on government orders in the face of severe opposition from the businessmen.
Shahid said it was imperative that the government introduced reforms after thorough analysis so such situations can be avoided. If the present reform is withdrawn for the time being, reintroducing it in future would be more troublesome due to greater resistance.
Undocumented economy
Shahid cited the introduction of value addition tax in 1987-88, which too instigated countrywide protests by traders, forcing the government to withdraw the levy. This success, the economist said further emboldened the traders, and since then they have thwarted all attempts by different governments to document them. Even the dictatorial Musharaf regime succumbed to the pressure in 2000 after traders went on a 24-day shutter down against documentation of economy.
Within the parameters of the existing law, tax filers are required to attach their bank statement along with their annual tax returns, Shahid said. Any documented company would have no problem to comply with the prerequisite, however, he added that unregistered businessmen were not supposed to provide any detail of their account transactions and hence continued making money fearlessly. The introduction of SRO 68 threatens the undocumented traders, as they would not be able to justify huge transactions.
He expressed surprise that even some chambers of commerce and industry were vehemently opposing the SRO.
“Tax dodgers have been hoodwinking tax authorities for the last two decades,” said financial analyst Amina Usman CPA. Even when the authorities try to tax them through utility bills, they resort to large scale theft of power and gas, she said, adding, “When they are forced to pay sales tax on supplies they manage to get higher than sales tax refunds through fake invoices.” However, fake invoices cannot be generated without the connivance of tax officials, who are bound to issue sales tax registration after verification of documents and business premises, she informed.
Lamenting the attitudes, the analyst said that yarn traders in Faisalabad have successfully been dodging the tax authorities by reducing bank transactions to the bare minimum. “They took such precaution years before SRO 68 was issued,” she said.
Revealing the methodology, Amina said that a single cheque is circulated among different buyers for purchase, or at times instead only a chit (parchee)- treated as cash- is issued by a trader in all subsequent transactions before someone actually gets the actual cash. This way, she added, transactions worth billions of rupees are concealed and only the cash received via the chit or hard cash is recorded.
Qaumi Tajir Ittehad Chairman Anser Zahoor Butt said that the chit system suits Faisalabad yarn traders, who are in fact the actual financiers of thousands of looms operating in the city. Small looms, he added cannot stock yarn in bulk and so purchase on a daily basis from the yarn market from these traders, who are based mainly in Faisalabad.
The traders, he alleged, have succeeded in dodging the tax authorities due to loopholes introduced in the system by the tax regulators.
The undocumented chain in textiles, besides yarn traders includes the power looms, sizing industry, and small processing units. These have been subjected to indirect taxation, said a spinner.
They have to pay withholding tax on their utility bills. So, he said these yarn traders stock yarn in an unregistered warehouses to remain outside any tax net. This open tax avoiding practice, he regretted was not challenged by the FBR.
He said spill over of Faisalabad yarn market started creeping in other big cities of the country about five to six years ago. Influential parties in Shah Alam or Akberi Markets, he added now conduct their business transactions “the Faisalabad yarn market way”. The practice, if not seriously tackled, would become more widespread. He said it is gaining momentum after the issuance of SRO 68.
Economist Faisal Qamar too demanded for the SRO to be implemented in letter and spirit. “We may see some revenue shortfall in the short run, but the revenues will pick up rapidly if the banks transactions of each trader are prudently probed,” he said.