EDITORIAL: A ‘unique scam involving tax officials’ unearthed by the Federal Tax Ombudsman (FTO), according to a report in this paper, ought to prompt authorities to make examples of all those involved by initiating disciplinary, even legal proceedings against them. It turns out some officials of the Federal Board of Revenue (FBR) have been running a racket by citing technical glitches in the system to roll back determined income tax refunds of overseas Pakistanis.
The FTO was approached by a US-based Pakistani doctor claiming that even after obtaining a favourable order from the appellate forum and getting the refund assessment order, the refund was not credited to his bank account. He alleged, very rightly it seems, that some tax officials were involved in stopping determined/assessed income tax refunds for months on end by blaming technical issues.
According to the law, in light of a binding Supreme Court verdict, FBR is also bound to issue compensation for delay in lawful refunds, so this matter will test relevant authorities beyond just getting to the bottom of the so-called technical issues mentioned by the revenue board. This is just another example of tax officials conniving to subvert the system when their energies are desperately needed to address FBR’s appalling track record in tax collection.
The chronically low tax-to-GDP ratio, and FBR’s utter inability to do anything about it, has also caused further difficulties in continuing the Extended Fund Facility (EFF); to the point of triggering rumours about a tax-laden mini-budget to meet the International Monetary Fund’s (IMF’s) strict conditions. And even though the government has played down such chatter, nobody can stop these things from taking a toll on investor sentiment and, therefore, financial markets that are already pricing in an unusually elevated threat of default all over again.
Not only is FBR getting nowhere in its efforts to expand the tax net, every now and then its officials are found misusing authority to harass and disincentives the few people that do pay their taxes; just like the issue brought before the FTO in this case. That’s why it must be noted, at the risk of repetition, that unless those stretching the law are made to pay for it, the process of meaningful reform will never start. All this also explains, to a very large extent, why no administration so far has been able to carry out those necessary reforms, despite making very loud promises.
Surely, the government realises that the matter of tax reforms cannot be delayed any longer. The model where most revenue comes from customs duties and sales tax is simply untenable now; especially if we want to keep borrowing survival money from the Fund without breaking the economy because of its stiff demands. Investigators must, therefore, not just deal with the technical issue that has been fiddling with refunds, they must look deeper and also uncover other criminal activity within FBR very quickly.
It’s also something of a shame that the heated politics of these times keeps such things well away from the headlines and neither the government nor the people can give them much thought. These are matters that should unite ruling and opposition parties because they matter to the state as a whole, yet such is the makeup of the multi-party democratic system that the latter invariably celebrates when the former runs into economic troubles, just to score political points. But these are not normal times, and the country risks nothing less than outright bankruptcy unless it drastically mends its revenue model; and tax collection is at the heart of it.
Everything must still start with getting FBR into shape, and that is not going to happen till it is cleansed of rogue and corrupt elements inside it.
Copyright Business Recorder, 2022
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