The faults that computers develop

It was gratifying to see the government functionaries admitting that the FBR super computer has faults which have now been rectified. The exporters who have been waiting for their claims for the last one and a half years can now "re apply" for the rejected refunds and these shall be considered. Glad to see that after one year of begging and pleading the FBR has realized that their "super computer" can also go wrong. What a pity that the FBR computer can only go wrong to the detriment of exporters claiming refunds, never the other way round! Exporters never get an extra dollop of refunds because the computer developed a fault. The problem is not with the computer alone; it is with the system itself. The system is designed to collect as much tax it can from those who fall into their network and is not bothered about exports. How can a tax collecting agency whose performance is judged solely by the quantum of taxes they collect possibly hand over refunds willingly?

We had been running from pillar to post trying to extract the sales tax refunds that the government had promised us will be released "within 72 hours" of our application. The first applications were submitted by mid-August last year. Applications are to be submitted at the close of each month, and are to be processed by the super computer within 72 hours. "All human intervention will be avoided" and the computer who knew all will sift fact from fraud and award the justified refunds instantaneously. No "agents" or advisers or commission wallahs. We were thrilled but were soon to be disillusioned badly.

We went round in circles, to our FBR officers, up to the Director General Exports on the fifth floor of the forbidding office in Lahore. We were advised to "wait a bit longer, the system was new and its flaws were being ironed out." Each time our delegations were fobbed off with promises to "speed up matters," but matters remained exactly where they were; firmly stuck in the deep recesses of the super computer.

In November 2019, we the towel manufacturers conducted a survey. Only 70 members responded as the others did not want to be named for fear of being singled out and punished for complaining. Out of the 70, only two had been awarded refunds, another 12 had got some response in terms of an outright rejection or a partial refund and the other fifty four had heard nothing. The computer was not willing to answer any questions!

By January the situation was desperate. The original two who somehow managed to get their refunds were now history. 29 cases had been revised and rejected; finally, 52 had received some partial payment and 29 had not heard anything at all. Exports were falling and factories were being shut down.

Most members had given up as they were advised that the computer is not working properly and it was pointless getting your application rejected and then be destined to wait forever for administrative justice.

"So the best is to shut down and wait for better times," went the argument.

We took up the courage to confront the then much-feared Chairman FBR, Shabbar Zaidi, in his office in Islamabad. We presented our survey report which was duly backed by all the statistics and sources. The Chairman was incredulous; he thought all was well with the world and his capable officialdom had refunds well sorted out. To his credit when the Chairman FBR realized that the mighty computer was not working he did get it fixed. Perhaps the fact that exports were dwindling month by month also helped. Perhaps the clamour of all the desperate exporters in the corridors of power had got through the dense fog of power that pervades in Islamabad. Or perhaps the deadline for meeting tax targets on 31st December had passed. Whatever it was, by end January the mighty "computer" relented and almost as if by magic the exporters started receiving their sales tax refunds.

We shall see how long the computer will behave itself and act fairly. I suspect as the pressure of the IMF on the government to meet targets begin to loom by end December and then end June the computer may develop further faults.

The officialdom and the establishment have an anti-export bias. "Exports create shortages", they believe. Domestic supply of say cheap mangoes or tomatoes or cement or what have you dries up, prices go up and therefore the best is to ban exports of whatever is in short supply. No one considers the medium-and long-term effects on the country's image as a reliable supplier. The well-recognized principle that exports must not bear indirect taxes has to be respected and taxes should not be introduced through the back door as is habitual in Pakistan.

Exporters pay an income tax of one percent of their export earnings. This is deducted by the banks the moment an exporter gets paid for his exports by the foreign buyer. Fair enough, as this exempts the exporter from the hassles of annual scrutiny and assessment by the ITO. So all inputs of the exporter should be income tax free. The FBR loves to put deductions at choke points like imports under the guise of "advance income tax." So as per SRO 947(1)/2008, all exporters who imported machinery were exempted from withholding tax. Quite clearly they would pay the income tax through bank withholdings every time their bills were paid by their customers. Now for some inexplicable reason the FBR has withdrawn this facility vide their SRO 1020(1)/2020 dated the 7th of October.

Similarly, all electricity and gas bills have tax deductions on them. Why? When the bill is especially produced for a zero-rated industry which is considered producing goods primarily for exports.

If exports are to flourish then exports must be zero rated. No indirect taxes should be levied on them. There also has to be an avenue for redressal and appeal. The ministers are too busy playing the game of power to bother about mere trade and commercial matters.

Copyright Business Recorder, 2020