Tax survey

The National Assembly's Standing Committee on Finance and Revenue was informed by a team of Federal Board of Revenue (FBR) led by Member Finance Shahid Hassan Asad that a tax survey is planned after the lapse of 15 years. The last tax survey was carried out in 2000 in Pakistan and Wakil Ahmed Khan, spokesman for the FBR at the time, publicly stated that an increase of 38 billion rupees in revenue collections during the first ten months of 2000-01 could be attributable entirely to the tax survey against the 100 billion rupees estimated at the launch of the survey - a target reportedly given by the then head of government General Pervez Musharraf.
Overestimation has been the hallmark of not only FBR officials but also of Pakistani finance ministers and it is significant that the incumbent Finance Minister Ishaq Dar stated recently that giving ambitious revenue targets motivates the FBR to work harder to achieve targets. He did not mention that overestimation of revenue targets accounts for many a mini-budget during the year as well as a slash in the development expenditure much to the chagrin of the general public.
Be that as it may, the tax survey exercise is fraught with challenges and a look at what happened in the last survey, during the dictatorship of Musharraf, may hold the key for conducting future surveys. First off, it is relevant to note that the entire exercise was scheduled to be completed in 3 phases of 4 months each; however, even the second phase could not be fully completed. The reason given at the time was that the work of the second phase remained incomplete as 600,000 forms out of the 1,500,000 distributed in the second phase could not be retrieved due to what many believed was collusion/inefficiency of the FBR officials. This raises some legitimate concerns; namely, that if a tax survey could be derailed during a military dictatorship in spite of the commitment to hold the survey by the then chief executive of the country, General Musharraf, then the likelihood of the success of such an exercise during a civilian government which does not even form a government in three of the four provinces is in question.
There is no doubt that the non-filers operating in the country's parallel illegal economy are extremely influential and have time and again derailed successive governments' attempt to document their wealth with the objective of compelling them to pay a tax commensurate with their income. What has been evident, however, over the years is that the non-filers are ready to pay withholding taxes, collectable by entities other than the FBR, rather than file their returns. Thus, for example, the withholding tax on airline tickets is not collected by the FBR but by the ticketing agents who recently expressed their inability to collect withholding taxes on behalf of the government. In this context, it is extremely disturbing that FBR member Shahid Hassan Asad told an NA Standing Committee that the rate of withholding tax on non-filers is likely to be increased in the forthcoming budget 2015-16 mainly because withholding taxes are not collected by the FBR.
One would have hoped that the Member FBR had instead highlighted the impediments to a tax survey and the ways and means to overcome them. To focus on how the tax evaders in this country are succeeding in hiding their wealth from FBR is not a solution to the problem nor is highlighting the need for a tax survey. Granted that the onus of levying taxes, their implementation and the success or failure of a survey rests with the government of the day and the recommendations it may make to parliament, yet one would hope that the FBR comes up with recommendations that are likely to make the tax system more equitable and fair rather than in supporting withholding taxes which are not collected by the Board.