Press reports suggest change of guards to take place at Federal Board of Revenue (FBR) soon (may be today). The appointment of Chairman from within FBR (if the senior most officer is ignored) will certainly be a cause of discord among high-ups and if taken from outside, is bound to create disappointment both for IRS (Inland Revenue Services) and PCS (Pakistan Customs Services). Whether this change, without the much-needed and much-delayed fundamental structural reforms in the entire tax system, would be of any help to generate required revenues? The new captain will only resort to more taxes and negative tactics to squeeze the existing taxpayers. He will be under tremendous pressure to meet shortfall.
It is an incontrovertible fact that for showing higher tax collections, FBR has been blocking bona fide refunds, taking advances not yet due and unlawfully recovering disputed tax demands even before receipt of appellate orders. Major tax collection responsibility has already been shifted on the shoulders of withholding agents. Exporters and other sectors contributing to the economy have been facing cash crunch due to FBR. Despite all this, our Finance Minister claims that "FBR has shown tremendous performance." Now even a business magnate is looking after FBR's matters as Advisor of Prime Minister, though his own tax affairs are under investigation by National Accountability Bureau (NAB)-'Policymakers also benefit from remittances', The News, September 4, 2015.
Record confirms that appointments of chairmen of FBR during the last six years-from Sohail Ahmad to Salman Siddique to Mumtaz Haider Rizvi to Ali Arshad Hakeem to Ansar Javed to Tariq Bajwa-have only rendered things from bad to worse. Cronyism and corruption reign supreme in FBR. It is thus not surprising that it has earned notoriety in all areas: from misreporting of figures to bungling of funds, from corruption to highhandedness and from inefficiency to worthlessness. Time and again, different chairmen of FBR have admitted before the Standing Committees of Parliament on Finance and Revenue that tax reforms had miserably failed-at the end of the six-year-long Tax Administration Reforms Programme (TARP), there was decline in tax-to-GDP ratio, from 12.5% in 2002-2003 to 8.2% in 2010-11. On November 10, 2015, Tariq Bajwa admitted before the Senate Standing Committee that FBR in order to issue all refunds had either to impose more taxes or government to issue bonds. This is confession of "hit-man" at last!
On March 3, 2012, the then Chairman FBR made tall claims that "we will generate an additional Rs 100 billion by curbing evasion of taxes and duties, which remain rampant in the country." He claimed: "traders, industrialists and businesspeople evade billions every year by under-reporting their invoices, submitting incorrect declarations of imported goods and misuse of the transit trade facility with Afghanistan." This statement was an open admission on the part of FBR's head that his subordinates were a complete failure. But he never explained how tax evasion was possible without the connivance of tax collectors.
Unfortunately, no action has been taken against FBR's high-ups for causing losses of billions of rupees every year-even NAB till today is not inclined to conclude investigations against "missing containers mafia." It is strange that the Standing Committee on Finance & Revenue of National Assembly and Senate has never recommended removal of FBR's top notches even after established cases of corruption, over-stating of collection figures, making false statements and misleading elected members and the entire nation.
Every chairman on assuming the charge makes vows to tax the untaxed but ends up protecting the rich and mighty. In the last Senate elections votes were purchased and sold, but FBR did not issue notice to even a single person. One Senate seat was sold for over Rs 100 million proving that politics is a highly lucrative business in Pakistan. Tax Directories for 2013 and 2014 show laughable quantum of incomes of majority of elected members, yet FBR till today has not issued notice to any one of them. They have assets inside and outside the country-mostly held benami. But no chairman has shown the courage to investigate powerful men in power.
Since 1977, tax incidence on the rich has decreased drastically whereas it has increased unbearably on the poor. The rich classes, especially absentee landlords sitting in assemblies have not paid even a single penny as income tax though having substantial agricultural income. This class of landlords also includes mighty generals who have received lands as grants and awards. Would the new Chairman enforce the law and tax them or like his predecessors, just pay lip service to FBR's motto: vision, mission and value?
The present tax system imposes undue incidence on the poor and middle-class people eg 17% sales tax (in fact 30% to 50% on many finished imported/manufactured goods after levy of all kinds of taxes), takes larger portion of low-income groups compared to high-income groups. The rich and mighty enjoy tax exemptions and concessions on their colossal income/assets. They make enormous profits through rent-seeking, speculative transactions in stocks and real estate but pay nothing to the State. They flout tax laws with impunity yet FBR is content with collecting just a little more from them in the capacity of "non-filers" without determination of their actual incomes.
The provincial governments are also guilty of protecting the rich and mighty by not collecting tax on "agricultural income" as per prevailing laws. The rich and mighty in Pakistan do not file tax returns but FBR issues notices to filers alone! From 2003 to 2015, FBR has miserably failed to improve voluntary tax compliance through strong deterrence system. Tax culture will never improve unless people are assured that taxpayers' money is spent on public welfare.
FBR is single-handedly destroying business growth. It is high time it should stop harassing the compliant taxpayers and protecting the cheat. Tax policies should encourage investment, especially for all those who generate more goods and services, leading to greater employment opportunities. A higher economic growth will automatically increase taxes. There is a need to dismantle the existing oppressive tax system and reconstruct it to restore public confidence in the State. But even a good tax system will not work if the machinery to run it is incompetent, corrupt and inefficient. The solution is not a new Chairman of FBR but a new national tax authority; comprising professionals and not bureaucrats-Need for National Tax Agency, Business Recorder, November 1, 2013.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at the Lahore University of Management Sciences (LUMS)