Desperation, isn't it?

The National Assembly (having PML-N majority) has passed the Finance Bill 2014 legalizing several taxation measures that ignore their moral and operational flaws. As the stakeholders visualise the impact of implementing these measures, a feeling that this bill reflects desperation of the government and incompetence of the legislators, is gaining momentum.
That perception is that tax revenue must go up without the Ministry of Finance or the FBR accepting requisite burden of tax collection. That's why, emphasis remains focused on indirect taxation and collecting even direct taxes via indirect routes because FBR cannot identify and nab tax evaders to pay their share of income tax - a manifestation of inability to 'govern'.
Recently, while addressing a conference of OIC finance ministers at the Islamic Development Bank (IDB), Pakistan's Finance Minister said "IDB management must reflect on contemporary global economic realities," and help member states reform their governance structures, and remove structural disparities via equitable and sustainable growth and development.
What he said there was right but his actions in Pakistan speak otherwise. He is focused on cutting the fiscal deficit, neither on the outcome of bad legislation nor on taking steps to check tax-evasion; an example whereof is the gross under-collection of import duties because neither the Customs Directorate nor the FBR bother about investigating how under-invoiced goods keep flowing in.
A recent study by the Pakistan Business Council analysed the invoicing of goods imported from the UAE during 2005-12. That study identified large differentials between UAE and world prices for the same goods without any plausible explanation thereof indicating an ongoing ignored discrepancy in valuation of these goods by the customs authorities.
Under-invoiced imports from UAE include minerals, chemicals, pharmaceuticals, dyes, cosmetics, plastics and rubber articles, paper and paper board, textiles, ceramics, iron, steel, aluminium, lead, electrical appliances, vehicle parts, and other machinery. Shouldn't ask whether these items were manufactured in the UAE, and if not, why were they being imported from the UAE?
The only plus point was that while in 2006 imports from the UAE constituted 5 percent of total imports, by 2012 their share fell to 3 percent, but the effect of under-invoicing continued to form part of the estimated Rs 600 billion worth of annual revenue loss due to tax evasion, under-invoicing of imports, smuggling, and abuse of concessionary import duties.
While we have yet to see concrete steps to check under-invoicing of imports and smuggling, government seeks to trap tax-evaders via measures have been faulted by FBR's most sensitive tax collection agents with access to millions of citizens - commercial banks - who must now distinguish between tax return 'filers' and 'non-filers' and tax them as per the differing rates specified in the Finance Bill.
Pakistan Banks Association has asked the Chairman FBR to stop FBR's field officers from issuing notices for tax recovery by attaching the accounts of bank customers without providing evidence of empowerment to do so via delegation of authority as per the laws in force (Section 140 of the Income Tax Ordinance-2001) because such powers are vested in Tax Commissioners and above.
Did this require pointing out? To begin with, banks act as intermediaries between savers and investors, not as tax collectors. Besides, banks are obliged to satisfy their customers that taxes being deducted by them are indisputably authorised by competent authorities of the state otherwise banks' customers could sue banks for violating Articles 4, 25 and 14 of the constitution.
The Finance Bill has inserted the terms 'filer' and 'non-filer' via Sections 2.23(A) and 2.35(C) of the Income Tax Ordinance 2001, defining 'filer' as an entity appearing on FBR's Active Taxpayers' List or holding a 'taxpayer's card', and 'non-filers' as entities having neither of these attributes. Active Taxpayers' List available on FBR's website for reference is both incomplete and altered frequently.
To charge differing rates of tax to their 'filer' and 'non-filer' customers, banks must make major changes in their data bases (a time consuming effort), but frequent changes in Active Taxpayers' List expose banks to litigation by customers. Besides, whether 15 percent tax on profit of Rs 500,000 or more payable to non-filers implies full year profit or per transaction profit, isn't clear.
Resorting excessively to indirect routes to taxation proves FBR's failure not only to discourage tax evasion but also non-documentation of the economy without involving intermediaries and putting them under uncalled for pressures. It amounts to "passing on the buck", which undermines the oft-touted claim of the PML-N regime about improving governance.
Power sector's circular debt is another stumbling block because, to date, government has not found a way of, firstly, verifying the credibility of billing by the IPPs and, secondly, the amount of actual line losses on account of technical flaws and those caused by power theft. Instead of resolving these issues, the government just wants more money to pay off the circular debt.
According to press reports, the Ministry of Water & Power intends to recover Rs 89 billion from electricity consumers to reduce its debt servicing burden, and may allow Discos to claim 15.75 per cent (instead of the present 12.82 per cent) in the power tariff on account of line losses, showing how the ministry plans to reduce its own burden ie pass more of these losses to consumers.
The line losses of Iesco, Gepco, Lesco and Fesco are within the 9.5 to 12 percent range while those of the Discos operating in Peshawar, Multan, Sukkur and Quetta range between 21 to 37 percent - Discos whose losses reflect huge power theft. The question is should the honest bill payers foot the cost of theft by the landed aristocracy residing in these cities?
The only commendable aspect of the Finance Bill is that amendments to Fifth Schedule under the Customs Act 1969 annul duty concessions on the import of plant, equipment, apparatus and capital goods for various industries and sectors if these items are being manufactured locally, and will certainly boost demand for locally-manufactured plant and equipment.
From time to time, through Customs General Orders issued by the FBR, duty concessions will apply only to items certified by the Engineering Development Board as not being manufactured locally. It is this part that needs watching because distortions therein could allow continued import of the equipment being manufactured locally; powerful interests could force these distortions.
The bigger plus is that besides the power, mining, and construction sectors, 5 percent concessionary import duty will also apply to equipment for refrigeration, packing, agriculture, fisheries, animal husbandry, livestock, floriculture, horticulture, dairy, and poultry sectors; expansion therein could increase employment, cut inflation and, possibly increase both variety and volume of the exportable items.