FTO's recommendations

According to a Business Recorder exclusive, the Federal Tax Ombudsman has recommended to the Federal Board of Revenue (FBR) to expedite payment of refunds, ensure a hassle-free environment for claimants and streamline the system of sales tax registration and deregistration. The three suggestions are critical for improving the country's poorly performing tax collecting wing namely the FBR; and which are having serious negative repercussions on not only the country's export sector, labouring under liquidity issues due to inordinate delays in refunds, but also on the general public as government after government has been compelled to increasingly rely on withholding agents, rather than FBR officials, to increase revenue from taxes.
The FBR argues that refunds are delayed because it has to ensure that fraudulent claims, and those are significant, are not entertained. However what is unfortunate is that even genuine exporters' refund claims are delayed with many contending that the FBR's objective is mainly to show a revenue figure that is well in excess of reality to enable the Finance Ministry to show a budget deficit gap that is lower than is in fact the case; and further maintain that the reason for delays are only partially to forestall fraudulent claims. Exporters have frequently brought it to the notice of the Finance Minister as well as FBR chairman that delays in refunds are negatively impacting on exports and their contention is backed by falling export figures in recent months. The FTO has proposed that refunds be expedited through the establishment of a systemised Expeditious Refund System that would ensure prompt payment to exporters with filing and processing of claims made electronically through cross matching invoices by STARR computer system.
Withholding taxes are designed to increase collections from those who wish to remain in the informal sector and who are more than willing to pay a higher sales tax rate as non-filers rather than become filers. One would, however, argue that if the government increases the gap between the applicable withholding rate for non-filers and filers, the non-filers would begin to operate on cash basis alone that would deprive the government of this increasingly critical revenue source. Or in other words, there is no long-term solution to the problem other than to enhance documentation of the economy and bring the non-filers into the tax net.
In this context, it is relevant to note that our governments, past and present, do openly acknowledge that the best way forward is to enhance documentation of the economy but any attempt to do so has invariably led to strike action by those who would be affected compelling the government of the day to capitulate. The Dar-led Finance Ministry, like its predecessors, did formulate policies to bring the non-filers into the tax net however it was forced to abandon this after the politically-influential pro-Nawaz Sharif Faisalabad industrial lobby threatened withdrawal of political support. Thus it is not going to be easy to enhance documentation, the need of the hour however one would hope that steps, however ever slow, towards this objective maybe taken.
The country's tax system is arguably deeply flawed and is widely regarded as inequitable and unfair (by relying heavily on taxing those already taxed and on indirect taxes whose incidence on the poor is greater than on the rich) and anomalous in taxing those operating within one sector differently. Not taxing the rich farmers, heavily represented in the country's national and provincial assemblies, by citing constitutional articles is widely believed to be premised on political financial interests especially after the passage of the 18th Constitutional Amendment whereby the two status quo parties namely the PPP and the PML-N opposed amending the relevant article to enable the rich farmers to pay the same rate as the salaried on their net income.
To conclude, year after year independent bodies like the FTO suggest valuable revisions in the tax structure and the way the FBR operates as pre-budget proposals and unfortunately year after year these suggestions are shot down for political reasons. Unless the Finance Ministry is strengthened in this regard little if anything will change.