Ever year Federal Board of Revenue (FBR) as Revenue Division of Ministry of Finance (MoF), issues data relating to collection of taxes and duties it administers, with an analysis highlighting vital areas of achievements, weaknesses and other disclosures to adjudge its performance.
As before and since fiscal year 2019-20, even in the latest Year Book 2022-23 [Revenue Division], there is no mention about total income tax returns received for tax years 2022, and persons registered under Sales Tax Act, 1990 until June 30, 2023.
The last time such data was officially released was in FBR Year Book 2018-19, showing a total of 2,666,256 income tax returns received for tax year 2018, till the date of finalizing the year book, out of which 43,246 were those of companies.
However, in ‘Tax Directory of all Taxpayers for Tax Year 2018’ as well as in ‘Tax Directory Analysis for Tax Year 2018’, total number of income tax returns received till September 14, 2020 for tax year 2018 was shown at 2,852,349.
The incremental increase in tax received from new filers was not revealed despite repeated requests. Such non-disclosures constitute flagrant violation of Article 19A of the Constitution, which says: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law”.
Pakistani citizens are not seeking any information about any particular taxpayer, which is protected under section 216 of the Income Tax Ordinance, 2001, but they only want to know the contribution of all income tax return filers for each tax year.
They also want analysis of contribution made by all categories of taxpayers, namely companies, association of persons (AOPs) and individuals (salaried, non-salaried) as well as sector-wise tax paid by those engaged in business and profession. This data is not available in Year Book 2022-23 for consecutive 5 years now.
As regards much-trumpeted extraordinary performance claiming, “FY2022-23 would be remembered as a historic year as federal tax collection scaled a new height by surpassing Rs. 7 trillion mark for the first time in the history of the country”, it is pertinent to mention that out of total collection of income tax of Rs. 3086 billion, the contribution of 10 types of withholding taxes alone was Rs. 1762.5 billion. The remaining withholding provisions fetched Rs. 111.75 billion (totalRs. 1874.2 billion). Advance tax paid was Rs. 945.3 billion and with returns Rs. 122 billion.
FBR collected only Rs. 144 billion (arrears of Rs. 2.8 billion and out of current demand Rs 114.4 billion), which is only 4.66% of total income tax collection. The argument that the staff of Inland Revenue Service (IRS) contributes by monitoring of withholding taxes is fallacious as proved below.
Bifurcation of major contributors under withholding tax regime is: Contracts (Rs 390.8 billion), Bank interest & securities (Rs 320 billion), Imports (Rs 290.3 billion), Salaries (Rs 264.3 billion), Electricity (Rs 95 billion), Telephone (Rs 87.2 billion), Dividend (Rs 85.3 billion), Advance tax on purchase/transfer of immovable property(Rs 84.7 billion), Exports (Rs 73.8 billion) and Advance Tax on sale of immovable properties (Rs 70.3 billion)—Table 8, Page 11 of Revenue Division Year Book 2022-23. It is pertinent to mention that no bifurcation is given for as many as over 40 withholding tax provisions prevalent during the relevant year.
FBR claims that withholding taxes need strict monitoring for which it made efforts. If this is true then defaulting withholding tax agents must have been penalised and the demand should have reflected in either current/arrears collection, or through a separate note, which is totally missing. It is still open for FBR to post on its website the details of any such actions as well as publicise the number of income tax returns and sales tax registered persons, category-wise, as on June 30, 2023.
It must also disclose the quantum of due refunds. In the Revenue Division Year Book 2022-23 only refunds actually paid of Rs 17.3 billion are mentioned which were Rs 54.2 billion in FY 2021-22, showing a negative growth of 68%. Had all due refunds under all taxes been subtracted from collection of FBR, total amount would not have been more than Rs 6.5 trillion negating the claim of crossing Rs 7 trillion mark.
Figures provided in the Year Book 2022-23 confirm, overwhelming reliance on indirect taxation [even under the garb of income tax through presumptive/minimum tax regimes on a number of transactions] without evaluating its impact on the economy and life of the poor masses.
It is an irrefutable fact that despite resorting to all kinds of highhandedness, blocking of refunds and unjust withholding taxes, FBR has failed to improve tax-to-GDP ratio. It was pathetically low at 8.5% for FBR collection. FBR was not able to collect even Rs 7400 billion—the original target for fiscal year 2022-23 was Rs 7460 billion, which was later revised upward to Rs 7640 billion after the mini-budget levying additional taxes of Rs. 170 billion through Finance (Supplementary) Act, 2023. In Year Book 2022-23, FBR has admitted being “marginally short by 0.5% of the revised target” of Rs 7200 billion, whereas in the budget for FY 2022-23, it was fixed at Rs 7460 billion.
FBR collected Rs 7.16 trillion in FY 2023. After transferring Rs 4.22 trillion to provinces under 7th National Finance Commission (NFC) Award, the net available to federal government from tax (Rs 7.169 trillion) and non-tax revenue (Rs 1.710 trillion) was Rs 4.65 trillion, whereas debt servicing alone was domestic Rs 5.07 trillion and foreign Rs 760 billion. In FY 2023, all provinces together collected only Rs 649.56 billion of taxes and Rs. 165.88 as non-tax revenues.
In FY 2022-23, FBR collected only Rs 3086 billion as income tax showing a dismal share of hardly 4 percent in the GDP. It could have been 6 percent of GDP had agricultural income tax from the rich absentee landlords, also been collected as highlighted by Dr Muhammad Ashfaq, previous Chairman FBR. He rightly asked provinces to plug evasion by the rich landlords, but his efforts remained unsuccessful as he was removed with change of regime.
Similarly, in sales tax, federal excise and customs duties, due to rampant corruption and inefficiencies, the total collection was below original targets, what to speak of actual potential of Rs 6000 billion. In FY 2022-23, FBR collected Rs 2591 billion under the head sales tax against the original target of Rs 3076 billion, Rs 370 billion under federal excise duty and Rs 932 billion under custom duties again original targets of Rs 402 and Rs 953 billion respectively .
The alliance Government of Pakistan Democratic Movement (PDM), during its 16-month rule after assuming power on April 10, 2022, pushed the country towards a fiscal fiasco. It is evident from the Summary of Consolidated Federal and Provincial Fiscal Operations, 2022-23 [“the Summary”], released by MoF for FY 2023. The most startling fact: total federal and provincial revenues (tax and non-tax) of Rs 9.63 trillion against total expenditure of Rs 16.15 trillion.
Net revenues available with federal government after transfer to provinces were short by Rs 1.18 trillion to meet even a single head of expense, debt servicing of Rs 5.83 trillion, meaning thereby that the entire defence spending of Rs 1.59 trillion was met through expensive borrowed funds.
It was more than a fiscal fiasco—a distressful alarming signal, posing a huge threat to economic viability and national security of the state.
The disastrous outcome of mindless and costly borrowings, both external and internal, resulted in 45 percent increase in debt servicing in just one year.
According to the Summary, in FY 2023, total expenditure on debt servicing was Rs 5831 billion against Rs 3182 billion in FY 2022. Resultantly, fiscal deficit, mother of all ills, has reached Rs 6.5 trillion or 7.7 percent of the GDP (Rs 84.658 trillion).
(Huzaima Bukhari & Dr Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE) and Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’)
Copyright Business Recorder, 2023
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS) as well as member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected]
The writer is a US-based corporate lawyer, and specialises in white collar crimes and sanctions compliance. He has written several books on corporate and taxation laws of Pakistan. He can be reached at [email protected]
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