The Federal Board of Revenue (FBR) is expected to announce an amnesty scheme for textile units requiring registration subsequent to the amended zero-rating notification issued on the same day, March 15, as the three presidential ordinances seek to levy additional taxes on the already taxed.
This, the growing number of FBR critics maintain, is yet another example of the Board's customary ill advised policy of issuing a Statutory Regulatory Order (SRO) announcing a revenue generating proposal, in response to a directive from the Finance Ministry, without looking at its pros and cons.
The need to generate revenue to meet the rising budget deficit is critical and not challenged by government supporters or detractors alike. There is also a consensus that increasing documentation is the way forward given that Pakistan has a large parallel black economy that is estimated conservatively at 50 percent of the legal economy. Bringing this economy into the tax net is viewed by many as critical to achieve the objective of raising the tax to Gross Domestic Product ratio.
However here the unanimity ends! FBR/government detractors argue that given the high levels of corruption within the Board, estimated by the former Finance Minister Shaukat Tarin at 500 billion rupees per annum, and given the rising outlay for current expenditure that cuts into development expenditure, irrespective of the fact that the government cannot curtail the two major components of current expenditure namely defence and interest payments, the taxpayers have legitimately little confidence that their tax rupees would be used wisely.
This is proved by studies that show that Pakistanis are one of the largest donors to charities as well as the highest tax evaders in the world. Be that as it may, the FBR is essentially a body that cannot impose taxes even though it routinely recommends tax proposals to the government. Any new taxation measure or its enhancement is the prerogative of parliament or the President of the country who can issue an ordinance at a time when the parliament is not in session with three-month validity.
Thus, in all fairness, the FBR cannot be held accountable for the issuance of the three ordinances that imposed a 15 percent surcharge on income of those who already pay income tax as well as the enhancement of the special excise duty to 2.5 percent. However if parliament was opposed to these measures it could pass a resolution challenging the ordinances, an action that has not been tabled to-date reflecting tacit parliamentary approval of the measures contained in the ordinances.
The FBR however is empowered to withdraw an exemption. Business Recorder holds no brief with the grant of exemptions to pressure groups and influentials but merely proposes that the Board be more aware of the positives and negatives of its decision prior to announcing them. Thus for example on March 15 an SRO was issued that sought to end zero-rating of the textile industry, the largest foreign exchange earner in the country, the largest employer in the country that essentially relied mainly on indigenous raw material.
Two issues have erupted as a consequence. For the big textile units the issue of delays in refunds that would compromise their liquidity has surfaced while for the small textile units that are not registered at present the issue of the high penalty for non-registration is critical as it would definitely lead to their inability to carry on with operations. Thus it is imperative for the FBR to not only ensure prompt refund payment but also to ensure that amnesty be granted initially and subsequent penalties are affordable by all - large as well as small units.