The Federal Board of Revenue has reportedly ordered Pakistan Customs to obtain passenger manifests from airlines three hours prior to a flight to check smuggling of various currencies - local and foreign. FBR's latest directive to Customs should not, however, result in any kind of harassment to passengers. Risk profiling needs to be utilised instead of searching every passenger for excess currency over and above the permissible limit. An FBR press release, specifically mentions, effort to curb currency smuggling during Hajj seasons.
There are two categories of pilgrims: those travelling under government-paid scheme (usually from lower and middle-classes) and the other under private category from the upper segment of society. Taking excess amount of currency by the first category is minimal; while the second pays the local Hajj dealer in rupees for their stay in relatively posh premises. It is the Hajj sponsoring firms that advertise Hajj packages which need to be investigated as they usually use hundi/hawala on behalf of their clients. Instead of harassing Hajis it would be more advisable to create a window within an official channel to remit the payment.
For example, Riyal debit cards can be issued on behalf of money remitter institutions in Saudi Arabia to the Pakistan pilgrims. It is cheaper to purchase Saudi riyal in Saudi Arabia against the Pakistani currency than to purchase riyal in Pakistan because expatriates are not allowed to remit more than 80 percent of their monthly salary. Let us be innovative instead of just using the stick. Questioning by Customs about cash as well as banking instruments of departing passengers is a routine in the West especially on flights based on risk profiling. Searches are also undertaken - though randomly. In Pakistan, there are Customs' desks in the departure lounge to search for drugs. As such the structure is in place. Immigration also maintains data about embarking passengers. Thus far, FBR has not been able to massage the data available to the authorities. The challenge for FBR chief Ali Arshad Hakim is to teach his workforce how to do it.
The primary reason that the government has appointed Hakim as head of FBR from outside is the expectation that his expertise in technology usage will boost annual revenue collection. Creating a proper data warehouse and establishing connectivity between various revenue collection points in a seamless fashion whereby the expenditure data - the essence of the Tax Administration Reform Programme (TARP) - should match with a person's earnings as declared in his tax return. If expenses are more than a taxpayer's declared income, the tax authorities would be justified to press the taxpayer to justify his or her expenses. Unfortunately, however, FBR has thus far failed to establish connectivity for data transfer from other agencies such as utilities, banks, immigration and the SBP even though the law is in place requiring all withholding tax agents to do so. Insofar, data provided to FBR in most cases lacks authenticity which makes the tax collection effectiveness fuzzy, shaky and blurred.
It is indeed confusing to understand why only 3,000 companies file their returns when as many as 50,000 are registered with Securities and Exchange Commission of Pakistan. Out of 3.6 million registered National Tax Numbers, only 1.4 million file their annual tax returns - of which 0.9 million belong to the salaried class whose tax is deducted at source. This strongly implies that 2.2 million NTN holders are not submitting tax returns. This is indeed a shameful state of affairs. Hakim is on record having stated that there were 700,000 affluent taxpayers whose data could be provided by Nadra to the FBR. Finance Minister Dr Hafeez Sheikh made a commitment to the nation that he would go after them. Unfortunately, however, the team in FBR failed to perform; and it claimed that Nadra's data was defective. Nadra needs to be paid by FBR to obtain travel, housing and other profile data from Nadra while FBR needs to evolve its own parameters for audit and going after the non-filers.
One needs to recognise that the level of computerisation in Customs is better than in the Inland Revenue Service within FBR. In addition, customs officers are using the technology more effectively than officers in IRS. The bulk of revenue, however, is generated by IRS. The challenge is to train the IRS staff in technology usage. Blocking of all kinds of transactions through the CNIC could be tried. It would not cover all kinds of transactions unless there is effective connectivity.
Tax officials feel Foreign Exchange Reforms Act and exemption of agri-income from federal Income Tax Act - has turned the tax system into a sieve. As a result, tax collectors are helpless to catch tax evaders. This is not true. There is provincial tax on agri-income. All one needs is to ensure that the provincial and federal tax authorities are on the same page. Declaration of income from agriculture alone cannot justify the lifestyle of agri-landlords. Their expenditures, travel and lifestyle can be recorded and cross-checked with their tax returns filed with provincial authorities. If not filed, then the authorities should be legally empowered to act against them. If expenditure exceeds the agri-income - questions can be raised. Similarly, forex remittances through banking channels are recorded. Therefore, assets created and investments made with these funds are verifiable. Remittances received through unofficial channels if used to create assets or utilised for investments could be questioned. Pakistan has to improve its tax-to-GDP ratio substantially and lower its current account deficit within manageable means for sustainable growth and job creation. Political parties may win or lose an election but the country's perennial challenges remain the same. One can differ on priorities but the direction has to be consistent to attract long-term investment in order to create jobs. So let us create a centralised tax data base with input from federal and provincial tax collectors. Differences between Punjab Revenue Authority and Board of Revenue Sindh can be adjudicated by FBR. Interpretation of law between the centre and provinces could be initially resolved at the Council of Common Interest forum, otherwise, higher courts are there to settle such matters.
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