People use choice words to describe the FBR but let's just call it dysfunctional. It is inefficient and customer unfriendly, spends more on itself than what it collects, and is far from being a paragon of virtue. It is a principal cause of our IMF addiction. Winding it up is not an option.
Fixing FBR, as the new pro-bono Chairman proposes to do, would require an examination of the causes of its dysfunctionality. Successive governments have tried to reform FBR, and the World Bank weighed in with both advice and money, and yet things went from bad to worse.
Let's begin with Customs that has a stellar reputation for promoting, not preventing, smuggling. From missing containers destined for Afghanistan, to launches loaded with contrabands, to 'mis-declarations' at the ports, the stories are legendary.
Some brilliant exceptions apart, the folklore is that you join Pakistan Customs and you are set for life. BB discovered this when she got inundated with 'sifarish' from all over for appointment as Preventive Officer.
Customs' failure to check smuggling is structural.
When the government imposes egregious import duties it escalates the 'smuggling margin'. The laws of economics then kick-in: where rewards are high people take risks; where they are particularly lucrative you have the wherewithal to mitigate risk - including getting the disobliging officer transferred on phone.
An inefficient manufacturing sector can survive only on the back of high protection. Government finds itself between the rock and a hard place: without high protection it risks 'premature deindustrialization'; with high protection it risks smuggling.
Industry demands a 'cascading tariff structure' - low duties on inputs and high ones on finished goods. This translates into exorbitant rates of effective protection (in many cases considerably north of 100%). Smuggling becomes irresistible. It also spawns invidious toads like under-invoicing and 'mis-declarations'.
High rates also complicate the administration of Customs. They make 'exemptions' inevitable - one producer's finished good is another's raw material; interests of one class of manufacturers collide with that of another; you start creating distinctions between commercial importers and industrial users. The legitimacy line gets blurred; the functionary gains ground.
No amount of chastisement and disciplinary action can alter the fundamental laws of economics. Who carries the greater blame: the makers of flawed policies that leave so many gates open, or the watchman? It is like your leaving the doors and windows to your house open, all the goodies in sight, and expect the chowkidar to keep them safe.
The ultimate straw is the authority-compensation disconnect. When a container full of mobile phones declared as scrap translates into a 'saving' of several million rupees to the importer you have to be living in cloud-cuckoo-land to expect the inspector, whose compensation package matches that of your domestic help, to stand in the way.
Let's now turn to the Taxation wing of FBR.
It will be an understatement to say we have one of the most complex tax codes around. On the one hand it is a plate of steel and on the other a sieve. It complicates life for the compliant but is full of loopholes for the clever. It is an honest taxpayer's nightmare but a tax practitioner's dream come true. On top, it is extractive.
The system to file returns is no less daunting. With a great flourish we introduced the facility to file your returns on line. We know many in the UK who happily file returns on line. Here we will have to walk miles to come across someone who did it without the help of a tax practitioner.
Then there are the exemptions that completely distort tax policy, and oblige a revenue-starved government to resort to indirect taxes that are easier to collect but are regressive in nature and hurt the poor far more than they hurt the rich.
The law maker has colluded with vested interests to go light on the relatively buoyant taxes. Stock market wants special treatment. Exporters are happier with presumptive tax. Real Estate business is too clever to be corralled. Agricultural income tax is a 'no-go' area.
In each case the argument, ostensibly a valid one, has been 'you kill transactions and you kill economic growth'. But this folds into the system 'legal escapes' for the non-compliant. The law maker has effectively tied the hands of the law enforcer - when the tax man questions someone with an extravagant lifestyle unmatched by his reported income he is told of this farm in Malir!
Doing business here is easy. All it needs is friends in high places and a thick skin.
We have had perfectly legal whitener schemes and laws that legitimize unlawful gains. Ultimately, amnesty schemes become a necessity. The last one was a particularly well-intentioned one - to get people to declare their assets and bring them into the formal economy - and from our standards a fairly successful one.
Now we have the Asset Declaration Scheme, with the same intention - and a bigger grin on the Practitioners' faces.
What we fail to understand is why we cannot have 'voluntary declarations' written into our code, like in several other jurisdictions, allowing one to submit revised returns at any time without penalties and the Commissioner's prior approval? Wouldn't that obviate the need to have 'amnesties' that people suspect are specifically designed for certain interests?
Of course, the FBR functionaries are no babes in the woods; but the woods are so dense and dark, courtesy the policy maker, that you will be eaten up alive without the Practitioner showing you the path and the Collector covering your tracks.
In offering 'solutions' to the law and policy makers that create more space for their machinations the Collectors become partners in crime. But the real crime is perpetrated the by 'ultimate beneficiaries' who have the voice that resonates with the law maker. Collectors become a willing pawn in the game, kowtowed today and condemned tomorrow.
Narrowing the trust deficit, minimizing the Collector - payer (and Practitioner) interface, and greater automation are necessary but not a substitute for simplification of the tax code.
The devil incarnate is the law. Until we can exorcise it we will keep cursing the Collector and floundering from one amnesty to another.
Give the taxpayer a chance. Simplify the system so it works for him - and the government.
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