EDITORIAL: The newly-appointed Special Assistant to the Prime Minister on Revenue Dr. Waqar Masood has told a section of the media that given the conditions of the economy "if we have even four percent growth in FBR revenues in first quarter compared to first quarter last year that is still okay performance. Some pick-up is taking place such as fertilizer, but electricity demand has dropped by 1.8 percent in September." The overarching objective of this statement may have been to express satisfaction at the FBR's first quarter revenue growth rate and to caution Pakistan's lenders, particularly the International Monetary Fund (IMF), not to set an unrealistically high FBR revenue target.
Granted that the revenue target of 5.5 trillion rupees agreed by Dr Hafeez Sheikh, Advisor to the Prime Minister on Finance and Dr Reza Baqir, Governor State Bank of Pakistan, in May 2019 with the IMF was 'unrealistic' to start with, compounded by the severe contractionary monetary and fiscal policies agreed that led to a projection of no more than 1.5 percent Gross Domestic Product (GDP) growth rate with little capacity to attain the tax revenue target yet, given the ongoing negotiations with the Fund on the release of the second tranche, perhaps this was not the time to make such a statement.
The tax revenue target agreed by Pakistan's economic team leaders with the IMF for the ongoing year is 5.1 trillion rupees as noted in the April 2020 documents relating to the Rapid Financing Instrument and the slight scaling down to 4.96 trillion rupees in the budget presented to parliament on 12 June 2020. There is speculation that the delay in reaching the second staff-level agreement is due to the Fund's insistence on an FBR growth target (as well as a raise in tariffs) with severe political and economic implications (as it may further choke off economic activity) for the government. At this stage throwing a spanner in the negotiation works could have disastrous consequences for the government's ability to convince the Fund of its point of view that, in turn, would have serious implications on maintaining a sustainable foreign exchange reserve position.
The government has been at pains to insist that the construction sector has been re-energised as a consequence of its policies, inclusive of tax concessions as well as an amnesty scheme valid till the end of the calendar year announced in the first week of April 2020 - concessions which required approval of the Fund as well as possibly the Financial Action Task Force; however, Dr Masood mentioned only fertilizer as picking up in September thereby raising concerns about the government's claims with respect to the building sector. Given that cement is an energy-intensive industry Dr Masood's reference to a drop in electricity demand by 1.8 percent is also rather telling.
Be that as it may, Dr Masood focused on filers and non-filers and acknowledged that even though Pakistan has a large population of prospective taxpayers in the data base (a fact known to the authorities for more than a decade) yet there are 2.7 million returns filed out of which one million filed zero returns (due to the different withholding tax for filers and non-filers thereby prompting those not eligible to pay tax to file their returns). In other words, there is nothing new in what Dr Masood 'revealed'. To conclude, one would hope that instead of doing what previous chairmen FBR tried but failed to do he begins to undertake administrative reforms as well as reform the structure of taxes which are unfair, inequitable and anomalous. In addition, one would hope he revisits the withholding tax regime which is in the sales tax mode (an indirect tax whose incidence is greater on the poor than the rich) and provides legitimacy to the non-filer.
Copyright Business Recorder, 2020
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