Taxation issues

Senate Standing Committee on Finance chaired by Senator and former finance minister Saleem Mandviwalla is often well prepared to criticise the financial authorities and take on the government for its shortcomings. In a recent encounter with FBR Chairman, Nisar Khan, the Senate Committee noted that all governments give fake revenue collection figures and the targets were met only by squeezing the existing taxpayers. Budget deficit data were incorrect. Taxes were collected in advance. FBR had already taken taxes from the National Bank up to December, 2016 and several other entities were also obliged to pay taxes for the next three to six months with the result that there would be a shortfall in revenues in future. Members of the Committee felt that the budget deficit could be much higher than what was shown in documents. They also said that the high-handedness of the FBR should end and it was planned to strike down Section 138 of the Income Tax Ordinance that allows the FBR to seize the bank accounts of a person who paid less than the required tax. The Committee also discussed the impact of monetisation of vehicles on the annual budget of the ministries and termed the policy a failure due to excessive expenditures. Mandviwalla also asked the FBR Chairman to stop accepting unrealistic revenue targets from the Finance Ministry. FBR only "grills and grinds" the existing taxpayers to meet its targets.
Responding to the charges of the Senate Committee, the FBR Chief admitted that the revenue collection target of Rs 3.62 trillion for FTY17 was high and seemingly unrealistic. The FBR had not anticipated, for example, in the budget documents that the sales tax on fertilizers would be reduced from 17 percent to 5 percent. FBR could only collect Rs 625 billion during the first quarter of FY17 or only 6 percent higher than last year as against the desired target of over 18 percent growth due to the government's decision to keep the domestic prices of oil unchanged and stalemate on property valuation and banking transactions. The FBR officials, however, disagreed to the observations of Mandviwalla about taking taxes in advance from the private sector. They also informed the Committee that FBR had stopped seizing bank accounts after issuing the notices and this action was taken only at the appeal stage.
The highly critical attitude of the Senate Standing Committee on Finance appears to be largely justified. One reason for this plain talk and down to earth position could be the tenure of Mandviwalla in the Ministry of Finance in the last government and his close observations of the working of the FBR. Anyhow, the analysts who are aware of the usual working of the FRR could easily infer that what the Standing Committee has said makes ample sense and Nisar Khan had no proper answer to refute the charges. It could be easily seen from the previous data that tax targets were rarely met and shortfalls in collections every year were explained through various pretexts. This year too, the position is similar as tax receipts during the first quarter of FY17 have only increased by 6 percent as against the annual target of 18 percent. It could be argued that the tax receipts during the remaining part of the year could be increased sharply, ie, by over 18 percent to compensate for the shortfall during the first quarter of the year but this is not going to happen. The PML-N government does not seem to be in a mood to mount revenue mobilisation efforts in view of the present stiff opposition from some of the political parties and the coming elections which are not very far away. The government is also not interested in containing public expenditures which could help reduce the budget deficit. There is absolutely no doubt that existing taxpayers continue to be squeezed by the tax authorities and non-filers continue to lead an easy life without much pressure from the FBR. Non-filers have been subjected to extra levies on certain services and items but it would probably take a long time to bring them into the formal/regular tax net. Collection of advance tax to meet the targets is an old story which cannot be defended or denied. Policy of monetisation of vehicles was implemented to save money and make the bureaucracy less profligate but such expectations do not seem to have materialised. The reported disbursements of Rs 60,000 to a joint secretary and Rs 120,000 to a secretary for fuel and maintenance of vehicles are of course excessive and the change in the policy had not the desired effect. Seizing of bank accounts of course should be very rare and selective.
While there was no plausible denial for the tax issues raised by the Senate Committee, there is no denying the fact that old habits die hard and it will also take some time to resolve these issues. However, we are pleased that the right kind of noises have been made. Their wider publication will make the people more aware about the problems at hand and the right strategies expected to be followed. However, while Saleem Mandviwalla and his Committee now seem to be firing in the right direction and from a close range, it would be pertinent to raise the question of his inability to do the needful when he was in charge of the Finance Ministry.