The tax man cometh

The government will begin tabulating two critical sources of revenue on the first day of fiscal year 2019-20 (today) - figures that may compel it to readjust its budget deficit targets for the outgoing year and adjust some projections for the current year.
First, today was supposed to mark the end of the tax amnesty scheme, extended till 3 July the economic team considers as the final deadline for any further extension as that is the day the board of the International Monetary Fund (IMF) programme has scheduled to meet to consider the thirty nine month six billion dollar bailout package, given the Fund's declared opposition to amnesty schemes. The scheme was proactively marketed in the media by Prime Minister Imran Khan (he addressed the nation thrice on the subject) and appeared on a programme on a private television channel once. Chairman Federal Board of Revenue (FBR) Shabbar Zaidi, reportedly the scheme's architect, launched a blitzkrieg campaign on the electronic media on the benefits of the scheme and, like the Prime Minister, threatened dire consequences including confiscation of undeclared/under-declared assets in the event that the amnesty scheme was not availed by those with benami assets. Notwithstanding the government's rationale that the scheme was necessary after the government passed benami laws, which the previous administration had failed to do, the scheme is projected to generate revenue for 2018-19, for 2019-20 with asset declaration scheme though payment of due taxes possible till 30 June 2020, as well as future stream of tax as a consequence of asset declarations.
And second the release of the amount of total tax and total non tax revenue actually collected during 2018-19. During the first eleven months of 2018-19 total tax collections by the FBR were 3.303 trillion rupees against the targeted 3.751 trillion rupees (June data is not yet available though FBR may share provisional data with the media during the last few hours of fiscal year 2018-19).
There has been considerable praise for Shabbar Zaidi transcending party politics since he was appointed as Chairman FBR on 10 May 2019 by Prime Minister Imran Khan as the man with the capacity to understand the grievances as well as the concerns of the business community, his erstwhile clients, however at the same time there is much criticism of the tax proposals in the budget 2019-20. These two views are not in conflict and may reflect a phased approach to improving the tax structure and administration held hostage to the unrealistic revenue demand, 5.5 trillion rupees, by the Advisor to the Prime Minister on Finance Hafeez Sheikh, for the current year.
Syed Shabbar Zaidi has taken several measures designed to plug the loopholes for the non-filers while doing away with the distinction between filers and non filers in terms of the tax rate payable made by another chartered accountant - Ishaq Dar - that had netted the previous administration a massive rise in revenue. The rationale for doing away with the distinction can easily be supported given that Dar's system provided legitimacy to the non filers, though it did not significantly increase the number of filers which was its main objective. A tax profiling system has already been launched which contains comprehensive data for 53 million citizens including bank details, properties, utility bills and travel history - data that would be accessible only by the individual whose data is uploaded with not even the tax official allowed to breach the data. Zaidi stated that the "objective of providing access to the information is positive and not negative," and for the non filers to be made aware of the information that is available with the FBR. However the data contained in the system of several individuals is not current and this may lead to complications when and if the FBR goes against the high net worth individuals.
Zaidi has acknowledged that the FBR does not have precise information about the source of income of the 53 million people - is it from FBR exempt agriculture sector, or is it income of say a widow, exempt from filing, or any non taxable source? He also acknowledged that data in the portal is "not actionable" and that "making any information actionable is a long process."
The government has now access to details of 150,000 undeclared foreign assets under the Automated Exchange of Information, (subsequent to Dar signing the Multilateral Competent Authority Agreement on AEIO in June 2017 that provides for the exchange of information as part of the Common Reporting Standard developed by the OECD) with first exchange of information scheduled for September last year. While Dar's critics argue that he signed the agreement as it was becoming an international imperative yet this loophole would now be plugged. And finally six month stay in Pakistan before being declared a resident has rightly been shortened to 90 days - a reduction that one would hope leads to many filing their returns, including Hafeez Sheikh.
Presumptive tax has been done away with which can be supported however a minimum tax has been imposed that may be audited thereby minimizing the benefits associated with this measure. Zaidi also set up an anti-anomalies committee and one would hope that the many anomalies would be dealt with by the committee in due course.
However where Zaidi has clearly failed is in changing the tax structure itself which remains heavily reliant on sales tax, a regressive form of tax whose incidence on the poor is greater than on the rich. The rise in revenue from sales tax next year in comparison to the revised estimates of 2018-19 is a whopping 41.2 percent. Income tax as a revenue source is projected to rise by around 26 percent (though around 70 percent would be accounted for by withholding taxes on a range of services/products which are also regressive in nature).
By not referring to the unrealistic tax target for next year, no doubt as a show of support for meeting the government's expenditure targets - a support unlikely to be reciprocated when he fails to meet the target as Hafeez Sheikh has a history of blaming others when reforms are not implemented and targets not achieved, Zaidi may have left the FBR hostage to poor performance charges.
To conclude, if he is to make a difference Shabbar Zaidi would only have to stay the course but also begin to look at reforming the tax system/structure as well as challenging the unrealistic targets set by the parent Ministry - Finance.
(The views expressed in this article are not necessarily those of the newspaper)