Cash and reconciliation reporting systems: FBR chief denies allegations of figures fudging

Federal Board of Revenue Chairman Salman Siddiq on Friday categorically denied allegations of figures fudging and explained the authenticity of the foolproof 'Cash Reporting System' and 'Reconciliation Reporting System' having minimum margin of adjustment in reporting of revenue collection figures of the FBR.
Sharing revenue collection and reporting mechanism with media here on Friday, FBR Chairman said that after learning lessons from gross reporting of tax collection figures in June last, now the government has made the system foolproof. Since July this year the government has introduced online cash reporting system which is linked with State Bank of Pakistan and National Bank of Pakistan systems that leaves no room for doctoring the figures.
The FBR Chairman along with team of tax managers including Shahid Hussain Asad FBR Member Inland Revenue and Imtiaz Ahmad General Manger Pakistan Revenue Automation Limited (Pral) made a practical demonstration of the 'Cash Reporting System' and 'Reconciliation Reporting System', reflecting error-free online reporting system of revenue collection. With several examples, tax managers showed that how the new electronic system cannot commit any mistake except minor adjustment during reconciliation of figures with the AGPR. Salman Siddiq patiently heard the questions of media on reporting of figures and responded with evidence and supportive documents and gave live demonstration of all stages of revenue reporting till finalisation of figures after reconciliation process.
The FBR Chairman said that the provisional figures are reconciled with accounting system with a lag of one month. Except minor accounting adjustments of less than a billion rupees the cash reporting system figures and accounting system figures match up to 98-99 per cent. On November 30, the FBR had reported Rs 131 billion monthly collection on the basis of cash reporting system while the reconciled figure was Rs 131.8 billion, Rs 831 million higher than provisional reporting.
The FBR provisionally announced figures of 'Cash Reporting System' and later the figures have been duly reconciled with the system of the Accountant General of Pakistan, State Bank of Pakistan and National Bank of Pakistan. There is a very slight possibility of variation in the provisional revenue reported through the 'Cash Reporting System' and reconciled with the 'Reconciliation Reporting System'. In the presence of authentic revenue reporting system, there is no possibility of any major variation in provisional revenue collection and final figures of the FBR. With the help of the 'Cash Reporting System', the FBR has made a foolproof system which has made figure fudging almost next to impossible. "With the passage of time the element of discrepancy in figures would be totally eliminated and there would be no difference in the reported and reconciled figures," he showed full confidence in the new system and announced that with the current system of Cash Based Reporting we are aware of the revenue collected on day to day and hour to hour basis.
For example, the revenue collection reported through the 'Cash Reporting System' stood at Rs 640 billion during July-November (2011-12) and final figure after reconciliation with the AGPR stood at Rs 639.035 billion during this period. Thus, there is a very low margin of variation in the revenue reported through the 'Cash Reporting System' and later reconciled with the 'Reconciliation Reporting System'. Similarly, during October 2011, the revenue reported through the 'Cash Reporting System' stood at Rs 128 billion and after reconciliation the revenue stood at Rs 126.408 billion this month. In November, the 'Cash Reporting System' has reported Rs 131 billion whereas reconciled figure stood at Rs 131.8 billion. Thus, there could be slight upward or downward adjustments during reconciliation of revenue collection, but this adjustment could not be very much higher. To further clarify the issue tax authorities explained that usually the revenue collected on last day of the month by NBP is reflected in the new Cash Based Reporting system in the same month. But this collection is deposited in the State Bank of Pakistan on the next working day, which falls in the next month, therefore in terms of reconciled reporting this amount is reflected in the next month. This process of adjustments continues till closing of June, ie, up to end of the financial year. Hence at the end of the financial year, any collection of previous year reported by NBP to SBP after close of the financial year is treated as spill over and accounted for the next financial year.
So far, provisional revenue collection of December 2011 stood at Rs 173 billion against Rs 161 billion in the corresponding period of last fiscal. It is expected that the revenue collection in December 2011 would reach Rs 198 billion to Rs 200 billion during this period.
Salman Siddiq explained that the 'Cash Reporting System' works on daily basis which is based on the cash deposited in banks. The 'Cash Reporting System' is basically provisional reporting of cash on net basis. The banking sectors transactions of SBP and NBP of all domestic taxes have been captured under the 'Cash Reporting System'. Now, it is a live electronic system, which has been reporting provisional figures on net basis. Through Collection Automation Project (CAP-I) and CAP-II, the system has been improved to ensure revenue reporting through the electronic system.
Salman Siddiq further highlighted that the second system is the Electronic System which collects import related data of customs duty, sales tax, Federal Excise Duty (FED) and withholding tax through three sources of One Customs Clearance System, Pakistan Automated Customs Computerised System (PaCCS) and Web-Based one Customs System (WeBoc). The revenue collection at the import stages through the electronic system has been made part of the 'Cash Reporting System'. After one month lag, the FBR's Directorate of Research and Statistics reconcile revenue collection data with the AGPR, SBP and NBP and verify adjustments.
The process of reconciliation included that the monthly Civil Accounts by AGPR has been done by 15th to 18 of the next month. The reconciliation of the FBR and the AGPR begins on 20th of the next month and it takes 10 working days. The AGPR report the reconciled figures to the Finance Division as well as the FBR.
The FBR figures are being verified by the AGPR, which is a second check on the FBR revenue collection system. As AGPR processes are not standardised with the FBR, the AGP has its own timeframe for reconciliation of revenue collection. Responding to a query, the FBR Chairman said the board will start desk-audit of all the corporate return after expiry of the date of the filing of returns by the corporate sector on December 31, 2011.
In the Large Taxpayer Units (LTUs), the desk-audit of all the corporate returns has been carried out and in case of Regional Tax Offices (RTOs), the desk audit of 5-10 percent of the individuals and the Association of Persons (AOPs) would be conducted. Under the Centralised Audit System, the audit is being conducted on the basis of risk based parameters under the Universal Self Assessment Scheme (USAS).
When asked about the new amnesty scheme for the sales tax defaulters or claimants of illegal input tax adjustments, Salman Siddiq said that one way is to legally pursue these cases in courts to recover the illegal adjustments claimed by the registered persons. The second option is to put the method to recover defaulted amount more quickly without fighting in the courts. However, the FBR has not finalised any amnesty scheme for the tax defaulters.
To a question on the number of total number of active companies, tax authorities stated that 22,500 active companies have filed their returns last year and these companies could be declared as active companies.
When asked about withdrawal of Annex-D from the new income tax return, official said that the FBR has not withdrawn the Annex-D as only minor amendments have been made in the relevant Annex on the recommendations of the business and trade. The details of the personal expenditure has to be given by the taxpayers align with the wealth reconciliation statements. Against the demand of the business community to abolish the Annex-D of the return, only few changes have been made.
Responding to another question, he said that the proposal of Gross Assets Tax was considered during last fiscal, but it was not implemented due to Constitutional issues. Under the Universal Self Assessment Scheme (USAS), the existing tax system is based on income and not asset based taxation. The concept of the Gross Assets Tax could not be materialised involving different factors including existing taxation system.
When asked about collection of income tax surcharge, Salman Siddiq said that the tax machinery has allowed the companies to pay the outstanding flood surcharge through adjustments. After last year's devastating floods the government had imposed flood surcharge at a rate of 15 per cent of the payable income tax. The big companies firms had disputed the levy by raising legal objections which resulted in delay of payments and the FBR was estimating to get another Rs 20 billion on this account. The FBR has already collected Rs 11 billion from salaried class and small businesses.
Responding to a query on Value Added Tax (VAT), he added that the broad-based integrated VAT could not be implemented as services is a provincial subject. The law is still lying with the Parliament and withdrawal of zero-ratings and exemptions in last March have started showing good results.