Prime Minister Shahid Khaqan Abbasi was approached by the Pakistan Taxpayers Advisors Association against tax officials' widespread practice to withdraw the tax claimed to be due from the private bank accounts of taxpayers even though the matter at that moment in time is sub judice as it is in appeal before the Appellate Commissioners. The Federal Board of Revenue (FBR) has also consistently been accused of not releasing sales tax refunds in a timely manner, which is cited as one of the major reasons for the decline in liquidity of the productive sectors, thereby compelling them to borrow from banks, at higher rates of return, to meet their immediate liquidity needs. This raises their costs of production not only in the international market, a reason cited for the decline in our exports, but also makes these products uncompetitive domestically as it fuels smuggling across our over 2000km long porous border.
These two prevalent practices continue to have a serious negative impact on the country's economy - practices supported by the FBR, backed by the Ministry of Finance, as the focus is on raising revenue either directly though compelling banks to issue cheques in favour of FBR or indirectly through holding onto sales tax refunds counted as revenue. There is no doubt that FBR has been consistently placed in a particularly difficult position each fiscal year, and this was particularly the case during the time Ishaq Dar was a functional finance minister, to have to grapple with a grossly overestimated and completely unrealistic budgeted revenue collection target. This in turn prompted FBR to: (i) withdraw the tax from a taxpayer's personal bank account when the issue was still under appeal with the taxpayer claiming that the income tax commissioner, an FBR official, was understandably reluctant to give a stay order to provide relief to the payers; and (ii) the delay in sales tax refunds could add a couple of hundred billion rupees to the national kitty.
FBR in its defence states that it is within its rights to get the bank to issue a pay-order in its favour after the rejection of a stay order by the income tax commissioner; and points out correctly that the process of the disposal of the appeal process is so very long and cumbersome that it takes years to reach a verdict. FBR's concern in this regard has some merit but the way to proceed is to streamline the process and ensure that a final verdict can be reached within months and not years. The FBR also claims that many of the demands for sales tax refunds are fraudulent and that their process of determining who and which company is legitimately entitled to a refund takes some time. This kind of logic is simply not acceptable because in the one instance FBR claims that the external appeal process takes too long while in the case of the refunds the FBR itself is taking too long which is seriously impacting on the country's productive capacity as well as its growth rate.
The issue, as Business Recorder has been consistently propounding, is that our tax structure needs to be changed as it is unfair (any increase in revenue collection is sourced to higher taxes on existing taxpayers rather than on widening the tax net), inequitable (with the rich landlords exempt from paying income tax under the constitution and the heavy reliance on indirect taxes implying that the incidence on taxes on the rich is less than on the poor), as well as anomalous (with productive units with different ownership paying different rate of tax). Unfortunately, though this exhortation continues to fall on deaf ears and one can only urge the government to focus attention on reforming the tax structure.
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