In a move that indicates lack of confidence in its own tax recovery machinery, the Central Board of Revenue has decided to hire private investigation agencies to recover custom duty arrears from defaulting importers/exporters.
According to a Recorder Report, this decision has been taken in the wake of CBR's finding that the defaulting importers/exporters in many cases are not traceable at the addresses provided by them to the authorities.
The action follows the formation of a high-powered task force headed by additional collectors/deputy collectors at each custom collectorate for the recovery of sales tax arrears.
CBR authorities believe that the owners of defaulting units may be engaged in business in new areas that fall in the jurisdiction of collectorates where they have not defaulted on duties/taxes. But there is a catch in the methodology the CBR wishes to adopt.
The present "recovery rules" do not empower CBR to hire private investigation agencies. New rules will, therefore, have to be framed to legally empower the agencies which CBR wishes to engage to do the job.
The initiative is obviously designed to improve revenue collection, and needs to be appreciated. It can also help narrow the tax-to-GDP ratio that at present is one of the lowest in the Third World. But the plan to hire private investigators to trace out defaulting importers/exporters may not work as smoothly as the CBR authorities seem to have envisaged.
The plan amounts to an oblique admission by the CBR of the failure of its existing tax collection machinery. It also seems to signal doubts about the integrity of its tax recovery officials. Either way, it does not reflect well on CBR's working.
Despite the introduction of business-friendly universal self-assessment scheme (USAS) and other measures initiated to broaden the tax base, the problem of default remains almost as acute as ever. According to available data, only 700,000 traders out of a total of about three million file tax returns. The ratio is reflective of the government's inability to promote tax culture beyond a measure of success it has achieved in this regard.
Hiring private agencies to trace out tax defaulters and evaders also carries the risk of employees of these agencies themselves getting involved in the same malpractices that have dented the credibility of CBR's own collection machinery. Secondly, hiring private agencies in the presence of the "informer scheme" makes little sense. Under the scheme that hinges on strict confidentiality regarding the identity of the informer, a certain percentage of the amount recovered from a tax defaulter or evader is given to the informer as a reward.
This too has apparently not worked; otherwise the need to hire private investigation agencies would not have arisen. The brutal hounding of a "tax informer" of Multan by a tax evader following disclosure of the formers identity by a CBR official is a case in point. It shows that new methodologies can deliver only when backed up by professionalism and personal integrity.
Hiring private agencies to do the job is more likely to further complicate things, and keeping tabs on its own staffers may eventually prove easier for CBR than to ensure that the field staff of a private agency exercises honesty.
CBR's policy to allow minimum possible personal contact between the taxman and the taxpayer needs to be pursued with greater vigor. Instead of devising new methodologies and rules, ensuring strict implementation of the existing ones can perhaps produce better results. What is needed is the honesty of purpose.