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According to media reports, the Directorate General Internal Audit Inland Revenue has retrieved nearly Rs 17 billion out of a total detected amount of Rs 28 billion. The department further claims in a report that it recovered 6.6 billion rupees pertaining to 131 pending reports. The FBR has been the focus of considerable criticism by the country's finance ministers.
Shaukat Tarin is on record as having stated that the FBR is one of the most corrupt institutions in the country responsible for 500 billion rupees of annual leakages. The incumbent Finance Minister, Dr Hafeez Sheikh, has not been that forthcoming about corruption in the Federal Board of Revenue (FBR) publicly though he has stated that he would turn his attention towards plugging the leakage from the FBR subsequent to the implementation of the Reformed General Sales Tax (RGST).
One must request him to reconsider this time line as the International Monetary Fund (IMF) Stand-By Arrangement has been extended for a period of nine months which, to analysts, implies that the implementation of the RGST maybe delayed by another nine months. The time to deal with corruption in the FBR is now, given the fact that the IMF is unlikely to release the remaining two tranches to the government without its critical conditions including the RGST being met, or in other words, the need for domestic resources is that much more after the nine-month extension.
While one must laud the performance of the Internal Audit Department, yet it is necessary to note two important elements. First, it is fairly routine for different departments of the FBR to submit favourable statistics to the media - favourable to the performance of a particular department with respect to meeting their annual targets. Thus identification of tax fraud must not be considered synonymous with actual retrieval of the amount. The process of appeal by the accused is fairly long.
The first layer of the appeal process is handled by the department itself, the second layer consists of the Tribunal operating within the Ministry of Law and Justice and the third layer involves the courts. Thus, it is not clear whether the 17 billion detected by the Internal Audit Inland Revenue Department is actually in the government coffers or is still pending the appeal process.
The Chief Justice of Pakistan is on record as having said that the main reason why the accused are freed by the country's courts is due to weak prosecution cases. It is unfortunate that while the need to strengthen the investigative branch has been acknowledged by various governments, actual implementation remains hostage to political considerations and lack of resources and no effort has yet been made to strengthen the prosecution arm of the government.
What is also relevant to note is that in an effort to meet the targets, the FBR departments misinterpret many a provision of the money bill. For example this year's budget allowed professional women engaged in research, tax exemptions. However, in practice, the FBR officials are harassing women researchers, challenging their research status by raising questions of whether the researcher is part-time or full-time and not looking at the number of published research papers, a standard normal mode of assessing the claims of a researcher in other countries.
And secondly, the amount retrieved or recovered is defined as an exemption that was inappropriately and inaccurately allowed by a tax official between the years 2005 to June 2010 and was identified by the Internal Audit in 2009-10. Thus a pertinent question is what action, if any, would be taken against the relevant tax official.
To conclude, there is many a slip between the cup and the lip as far as actual retrieval of a tax, due but not paid, is concerned. It is hoped that new Chairman of the FBR Salman Siddique takes strict measures to ensure that the guilty tax officials are punished, which would go a long way in plugging the existing loopholes. Strengthening the prosecution branch of the government rests with the Law Ministry and one would hope that effective measures are taken to strengthen it.

Copyright Business Recorder, 2011

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