ISLAMABAD: The only way to get rid of the Statutory Regulatory Orders (SROs) of the Federal Board of Revenue (FBR) on tax exemptions/concessions is to reduce the overall customs tariff rates at the import stage, and this policy is adopted under the new tariff policy of Pakistan.
This has been stated by experts here on Monday during the webinar on the “impact of SRO on Pakistan’s economy” organised by the PIDE.
Experts informed the webinar the cost of exemptions and concession in last two fiscal years stood at Rs2.3 trillion.
Robina Ather, chairperson National Tariff Commission (NTC) informed that globally the customs tariff on imports has not been used to raise revenue.
In Pakistan, the import tariff constitutes 47 percent of the overall revenue collection of the FBR.
The revenue should be generated through domestic taxes including income tax, sales tax, and excise duties.
Once the import tariff rates are reduced, the concessions and exemptions would automatically go away.
She said that the National Tariff Commission (NTC) is proposing the government to bring out hundreds of import tariff lines from fifth schedule of Customs Act to normal schedule in budget (2021-22) to remove distortions from the SRO-based concessionary regime.
The new tariff policy would focus on reduction in tariff at the import stage by removing distortions in the tax system, she stated.
She said that most of the concessions are now within the laws like Fifth Schedule of the Customs Act, or Sixth Schedule of the Sales Tax Act or Second Schedule of the Income Tax Ordinance 2001.
However, the FBR is no more legally empowered to grant tax exemptions, but the approval has to be taken from the parliament or competent authority.
As far as exemption schedule (Fifth Schedule) of the Customs Act is concerned, we are trying to reduce the items under the Fifth Schedule, she said.
Robina Ather stated that now there is a pressure on the FBR to raise revenues through the administrative and enforcement measures.
The import tariff is now the domain of the Ministry of Commerce.
All import tariff-related proposals are now finalised at the level of the National Tariff Commission.
Gonzolo. J. Varela Senior Economist World Bank (WB) agreed with the panelist to simplify the Fifth Schedule (exemption schedule) of the Customs Act 1969.
He said that the government is taking steps to simplify the complex tax system and reduce the cost of doing business.
The World Bank’s economist proposed that there should be sunset clauses for providing any concession to any sector with the guarantee that it would not be extended.
International tax expert Dr Ikramul Haq stated that the taxation that includes reduction or enhancement of rates or giving exemptions, waivers and concessions by SROs is a flagrant violation of the Constitution.
The blame lies solely with legislators that have delegated (rather abdicated) their constitutional obligation.
The delegation of power to executive to issue SROs is violation of Article 77 read with Article 162 as any bill that imposes or varies a tax or duty, the whole or part of the net proceeds whereof is assigned to any province, cannot be even tabled in Parliament without the prior approval of the president.
Advocate Supreme Court referred to the data that the fiscal deficit and tax expenditure through SROs caused huge revenue loss.
Around Rs64.2 billion worth of income tax was forgone for just 37 enterprises including the State Bank of Pakistan.
The Supreme Court of Pakistan’s Diamer-Bhasha and Mohmand Dam Fund donations cost Rs2.13 billion as tax expenditure under income tax.
Total cost of exemption on perquisites, benefits and allowances received by judges of Supreme Court of Pakistan and High Court is estimated at Rs283 million.
Value of tax-free superior judicial allowance was at Rs526.507 million for in-service judges and for the retired judges it was Rs605.280 million, he said.
Dr Ikramul Haq added that the SROs, other than for rule making or clarification or guidance, are in utter violation of the supreme law of the land and binding judgments or Supreme Court under Article 189 of the Constitution.
Even rule-making power should be subjected to approval by Parliament as is the case in many countries.
The statutory regulatory orders (SROs) of the Federal Board of Revenue (FBR) on tax exemptions and concessions granted to the powerful lobbies and sectors have caused serious damage to the small and medium enterprises in Pakistan.
Dr Manzoor Ahmed, a WTO expert stated that the FBR has its own vested interest of raising revenue through SROs, tariff or schedules etc.
The FBR is withdrawing the SROs, but the same things have been shifted to the schedules like Fifth Schedule of the Customs Act.
The tax concessions and exemptions available to the sectors and the individuals are now part of the schedules.
He said that the SROs of the FBR have fiscal cost to the exchequer.
In principal, the tax system should be reformed to ensure transparency and quality of fiscal resources.
Dr Shoaib Suddle, former Federal Tax Ombudsman said that the SRO culture has destroyed the whole tax system and we must get rid of them.
The FTO office has witnessed cases where SROs have overridden the law, superseded the legislation and even in some cases the SROs replace the law.
In case of emergency like situations, the approval of the tax exemptions or concessions should be taken from the Parliament.
The SRO culture is facilitating different lobbies, creating distortions in working of the FBR.
Former FBR official Zaheer Uddin Dar stated that the Free Trade Agreements and Preferential Trade Agreements are implemented through the SROs.
The imports from China are also governed under the FTA between Pakistan and China.
The SROs are creating serious problems for the small and medium enterprises. The SROs are creating disadvantages for the small and medium enterprises.
Copyright Business Recorder, 2021
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