The third time premiership of Nawaz Sharif on June 5, 2013 brought good news for tax delinquents but bad news for revenue generation. By personally announcing unprecedented tax concessions for his supporters, influential businessmen on November 27, 2013, later implemented through Statutory Regulatory Orders (SROs), he reconfirmed the track record of Pakistan Muslim League-Nawaz of appeasing tax evaders.
In the wake of "comprehensive tax relief package" unveiled by the prime minister, his finance minister proudly announced that "25 out of 26 demands of traders have been accepted by the government during its short tenure". The concessions announced by the prime minister further eroded the already fragile ability of the Federal Board of Revenue (FBR) to enforce tax obligations. It also rendered the tax target of Rs.2,475 billion fixed in the budget 2013-14 meaningless.
The audit of thousands of cases after Prime Minister’s Tax Relief Package (www.fbr.gov.pk/PrimeMinisterIncentives.aspx) was suspended to save known tax dodgers. This was done despite giving commitment to the International Monetary Fund (IMF) that no further tax concessions would be given, especially through SROs.
The Finance Minister used the infamous tool of SROs in the name of "facilitation" (sic) and the government nullified all the measures for the documentation of economy announced in the budget 2013-14.
The law passed by the parliament on June 26, 2013 -- Finance Act 2013 -- requiring the banks to share transactions, deposits exceeding one million rupees was suspended by an SRO -- 115(1)/2014 on 19-2-2014 -- in the case of existing taxpayers, allowing them to keep on evading taxes by just paying small amounts. Even in the case of persons not filing tax returns, no information has been obtained from banks till today.
Thousands of cases selected for audit for tax year 2013 through random computer ballot could have helped the FBR to achieve the tax collection target of Rs.2,475 billion but the prime minister’s package made that impossible. The tax target is now reduced to Rs.2,345 billion and the FBR, as usual, is using all kinds of negative tactics to show higher figures -- the growth of 17 per cent is a myth as billions payable as bona fide refunds are withheld and advances are received from the large taxpayers not yet due. The Senate Standing Committee on Finance has already taken serious note of this malpractice.
The spokesperson of FBR, speaking at a public function a day after the announcement of Tax Relief Package by the prime minister, was quoted to have admitted that "all the SROs issued by FBR in the last five months were on the demand of the business community". He said that "FBR is fed up with issuing SROs and is ready to surrender this power to [the] parliament".
Amnesty scheme of the prime minister did not bring any relief for the salaried class. It mainly favoured the traders and industrialists -- the existing taxpayers for avoiding audit to pay 25 per cent extra tax and those who never filed tax returns, just a minimum tax of Rs.25,000 for any year and enjoy.
Even this did not yield any results as revealed by spokesperson of the FBR on March 21, 2014 while speaking at a workshop in Karachi, "no encouraging response has so far been received for the tax amnesty scheme announced by the Prime Minister". It is shocking that only 3,000 persons have so far availed this scheme, paying a paltry amount of Rs 88 million. Despite extending deadline of the amnesty scheme from February 28, 2014 to April 30, 2014, the defiant are least pushed to avail it.
While the rich are not paying taxes and enjoying concessions, the field officers on the instructions from top bosses have stopped adjustments of determined refunds against demands and advance tax liabilities. They have started raising illegal demands and blocking genuine refunds. They are resorting to all possible negative tactics, including taking advances from big organisations.
If this is the way to meet revised target by the FBR, one can only be surprised. Unfortunately, neither courts nor Federal Tax Ombudsman has taken any meaningful action against this high-handedness. Figures of 17 per cent growth projected by the FBR are manipulated. Independent audit, if commissioned, would show huge quantum of refunds unlawfully withheld, receiving of advance amount not due, to show higher growth rate.
There is no chance that the finance minister or parliament will order a comprehensive inquiry. Tax Directory of parliamentarians, published on February 28, 2014, shows many delinquents. They will never take the FBR to task for fear of risk retribution.
The PML-N promised tax reforms in its manifesto to end foreign and domestic borrowings, but after they were voted into power they failed on both fronts. Granting of exemptions or reduction in tax rates through SROs is against Article 162 of the Constitution, yet the government says that in three years these would be gradually withdrawn. How can an unconstitutional act be condoned under any pretext?
The present regime, like its predecessors, is not interested in improving tax compliance for which, besides political will, an integrated automated Tax Intelligence System (TIS) is the need of the hour. In many countries, TIS correlates inflows and outflows with income tax and sales tax returns and monitor all transactions.
Without a speedy refund system and tax justice apparatus, that is prompt and transparent, tax culture cannot take root. There must be no sacred cows, no amnesties, exemptions, or concessions for the rich and mighty. The tax compliance cannot be improved unless all goods and services -- barring a few essential eatables, books, children’s garments, education tools -- are brought into the sales tax net and all persons having income of Rs.500,000 or more should be compelled to file returns with declaration of assets and liabilities.
The FBR has published tax directory of all taxpayers, but what about non-filers? If no action is taken against tax evaders, this exercise will prove futile. Ishaq Dar is taking credit of this feat but not telling the nation that amnesty is also given to non-filers under SRO 1065(I)/2013, diluting the entire campaign.
The FBR should immediately publish names of persons who are tax evaders and non-filers. The tax directory of parliaments is silent about their wealth statements, thus rendering it meaningless. In all, the PML-N is doing cosmetic things and is not serious in cracking down on the informal economy and tax evasion.