Taxing realities

Admission of Chairman of Federal Board of Revenue (FBR) before the Senate’s Standing Committee on Finance & Revenue that refunds of Rs97 billion are blocked has went unnoticed even at the level of International Monetary Fund (IMF) that is closely (sic) monitoring our fiscal performance. It is deliberate inaction, if not connivance.

It is reported in the press that the FBR Chairman did not disclose the actual refund claims, despite repeatedly asked by Senator Ilyas Bilour, who claimed that the "FBR actually blocked refunds worth Rs450 billion".

The continued slide of apex revenue authority should have been a cause of concern for all, but neither criticism nor warnings by the elected members has yielded any effect on the top brass of FBR. Enjoying ‘political backing’, they consider themselves above accountability. Many well-wishers keep on advising to stop writing about the FBR’s hopeless performance as it is like bhens kay aagay been bajana (playing flute before a buffalo, in other words an exercise in futility). This vital institution has become totally ineffective due to political interferences, incompetence and corruption.

The FBR, during the last six years, has miserably failed to achieve the revised targets, what to speak of originally fixed in the budgets -- pushing the government to borrow heavily. The debt servicing exceeding Rs1500 billion (nearly 77 per cent of total revenue collection of the FBR) has now become the single largest expenditure of the state.

The FBR has collected Rs1743 billion (after blocking refunds of billions) in the first 10 months of the current fiscal year (July 2013-April 2014) -- just 70 per cent of the original target of Rs2475 billion and 74 per cent of the revised target of Rs2345 billon. For achieving revised target, the FBR has to collect Rs602 billion in May and June, which is not possible. But as usual, the tax authorities are asking for more advances from the banks and public sector enterprises to minimise the shortfall -- the disgraceful saga of the past continues and the IMF is looking the other way.

In fiscal year 2012-13, the FBR failed to collect the three times downward-revised budget. The massive shortfall of Rs444 billion pushed fiscal deficit to 8 per cent against the budgeted target of 4.7 per cent of GDP. The FBR collected only Rs1936 billion against the target of Rs2381 billion -- at 3 per cent, it was the lowest growth in 13 years. In fiscal year 2011-12, there was shortfall of Rs75 billion, even though the target was revised downward to Rs1952 billion. In 2010-11, the shortfall was of Rs38 billion, but the then Chairman FBR with his team made a false claim they collected Rs1590.4 billion against the revised target of Rs1588 billion. The media exposed manipulation and later the FBR retreated and admitted that actual collection was only Rs1550 billion. Strangely, nobody was punished even after confession of cheating and fraud.

The FBR has been misreporting the figures regarding income tax payers in Pakistan -- there are not less than 50 million paying income tax under withholding system, though return filers for tax year 2013 are only about 890,000. Failure is entirely that of the FBR, as it remained unsuccessful in enforcing tax codes, compelling those having taxable income to file returns. Its performance is pathetically abysmal in achieving a satisfactory tax-to-GDP ratio [at 8.5 per cent it is one of the lowest in the world]. It is just thriving on withholding taxes and voluntary payments -- constituting nearly 90 per cent of total collection. The contribution of field officers [collection on demand through investigation or audit] is just 10 per cent of total collection proving beyond any doubt how useless this organisation has become.

The FBR is an epitome of inefficiency, corruption, indiscipline (infighting between various groups) and highhandedness. It has failed on all fronts: collection targets, widening of tax base, countering tax evasion and avoidance, recovery of arrears, voluntary compliance and reform process. It has been written time and again that the FBR is guilty of criminal negligence in not taxing persons having taxable incomes, but extorting money from those who earn below taxable income -- majority of the people subjected to withholding taxes have below taxable incomes -- there is no mechanism to refund them what was withheld.

On the one hand the FBR is resorting to all kinds of negative tactics to show higher tax collection and on the other is not collecting income tax from the powerful. Retrieval of tax losses of billions of rupees can be done from them, but ruling elites would not allow any kind of accountability as it would go against them. The indirect taxation suits them as it makes them richer -- by passing the incidence on the poor. Regressive taxes take larger part of the small income of the poor and make their lives more miserable. Our tax system is pro-rich and anti-poor.

Small business houses and salaried persons, already heavily taxed through withholding tax mechanism, are victims of fiscal highhandedness. The FBR after publishing tax directory of all those who filed returns for tax year 2013 now should publish directory of defaulters. It must tell the nation how many rich consultants, lawyers, doctors, other professionals, high-ranking civil-military bureaucrats, parliamentarians and businessmen, including their dependents, have amassed colossal wealth, but are not paying due income tax. They must be asked about the sources from which they enjoy a life of luxury, whereas the poor are dying of starvation and untreated illnesses.

Taxing realities