The 'SRO culture'

The Public Accounts Committee (PAC) under the chairmanship of Nadeem Afzal Gondal took strong exception to the issuance of as many as 4500 Statutory Regulatory Orders (SROs) that effectively undermined the Parliament's right to reduce or enhance existing taxes. While the objection is justified, yet it is relevant to note that parliament has to date played a very peripheral role towards enhancing taxes in this country through the elimination of exemptions.
This, so claim analysts, is because the parliamentary members have opposed all moves to impose a tax on farm income at the same rate as that levied on other sectors because the majority in their ranks, both at the federal and the provincial levels, are absentee landlords.
In reality, according to tax analysts, parliament has been directly responsible for an abysmally low tax to Gross Domestic Product (GDP) ratio in the country as well as the small number of income taxpayers as it has not considered amending the constitution that would allow all sectors to be taxed equally, based on their income. In addition, parliamentarians across the board are reluctant to support tax enhancing measures as they are fully cognisant of the fact that any increase in taxes or the levy of a new tax would naturally account for the general public placing the blame for a resulting shrinkage in their income on their head which, in turn, would have negative political implications. These are valid objections.
The principal reason for the issuance of SROs is also extremely sound. The Federal Board of Revenue (FBR) is given a tax collection target by the Ministry of Finance at the beginning of a fiscal year that, many argue, is premised less on whether the target can be realistically achieved and more on the identified expenditure requirements for the year.
The tax collection target is thus set to enable the Ministry of Finance to show a deficit that is simply unachievable by the end of the year - a position that has been patently evident in the budgets of the past four years or so. To rely exclusively on parliament to generate higher tax revenue would therefore lead to a lower tax-to-GDP ratio than at present given the reluctance demonstrated by parliament to approve a tax rise or support the levy of a new tax. At the same time, pressure begins to mount on the FBR to meet the budgetary targets by the end of the first quarter of a fiscal year and this in itself is responsible for the issuance of a large number of SROs.
It is also relevant to note that subjects that are considered to be sensitive are also dealt with through SROs. On 20th March 2012, the Ministry of Commerce issued an SRO No 280(1)/2012 to amend the import policy order 2009 as follows: "Import of goods from India or of Indian origin specified in Appendix-G shall not be importable. The goods other than those mentioned in the said Appendix shall be importable from India subject to same conditions and requirements as prescribed under this Order wherever applicable."
According to the FBR website, 39 SROs have been issued in 2012 alone and included the following: (i) in pursuance of ECC decision, SRO 190(I)/2002, dated 2nd April, 2002 has been amended to exclude all kinds of petroleum products whether imported or produced locally (except when there is a government-to-government contract done through oil marketing companies only) from the purview of zero-rating on export to Afghanistan and through Afghanistan to Central Asian Republics; (ii) OMCs are not required to pay value-addition tax at the import stage on POL products whose prices are regulated by the government; and (iii) the scheme of zero-rating of five major export-oriented sectors has been revamped to introduce a uniform rate (reduce sales tax @ 5 percent). This SRO will take effect from 1st January, 2012. This SRO is being issued in rescission of SRO 1058(I)/2011, dated 23-11-2011.
However valid the PAC's objections with respect to SROs yet Gondal must surely be aware that the FBR comes under the purview of the Finance Ministry and as cited above it follows the decisions taken by the Economic Co-ordination Committee of the Cabinet that is chaired by the Minister of Finance. In other words, he needs to raise the matter in-house to ensure that the practice of issuance of SROs is slowed.