In their rejoinder Huzaima Bukhari and Dr Ikramul Haq have stated the following: This is with reference to Politics and 'business wars': clarification by FBR, published in Business Recorder of 18 October 2016.
In its clarification, Federal Board of Revenue (FBR) has asserted that "...authors' contention that FBR is being used as a tool to settle political scores is totally baseless and factually inaccurate. Federal Board of Revenue is a responsible state institution and enjoys administrative and functional autonomy. It does not discriminate between the taxpayers and no extraneous influences are allowed to interfere in its dealings with taxpayers. The authors have alleged that FBR is being used as a tool in the business wars of politicians and has referred to Wealth Tax recovery Notices issued to Jahangir Tareen for recovery of Rs 130 million. The said notice has reportedly been suspended by Lahore High Court. The relevant field office has confirmed that no wealth tax recovery notice has been issued to Jahangir Tareen and the report is baseless".
The "fact of issuance of notice" and "allegation of political use of FBR" was based on a news story published in a newspaper that FBR never bothered to refute. In our article sent to Business Recorder source was hyperlinked that did not appear in the print or web version. The story of newspaper relied by us is as under:
Tax notice to Tareen suspended [Dawn, September 6, 2016]:
LAHORE: The Lahore High Court on Monday suspended a wealth tax recovery notice issued to PTI leader Jahangir Tareen by the Federal Board of Revenue (FBR).
The political leader alleged in his petition that the FBR victimised him on political consideration as he belonged to an opposition party.
The petitioner's counsel argued before the court that the FBR unlawfully issued the impugned notice for the recovery of Rs 130 million as wealth tax. He said the recovery of wealth tax did not fall within the ambit of the FBR. The counsel asked the court to set aside the FBR notice for being issued without lawful authority. The court suspended the impugned notice and sought a reply from the FBR by September 30. Published in Dawn, September 6th, 2016".
Since we only reproduced the above story with reference [hyperlinked], FBR may take the matter with Dawn for wrong reporting if any. The question is why FBR did not refute the above report in time-it was thus logical to believe that it was correct!
The second point raised by FBR is: "FBR is legally barred from investigating into the sources of foreign remittance and as such would not comment on receipt of foreign remittances by any individual". The stance of the FBR is against the law. They should read the following and then decide whether they can probe or not:
Ordinance No XXI OF 1999provides that "immunity shall not be available to citizens of Pakistan residing in Pakistan and to firms, companies and other bodies registered or incorporated in Pakistan in respect of any new foreign currency account opened or deposits created on or after the 16th day of December, 1999 or to any incremental deposits thereafter in an existing foreign currency account". The Parliament later validated the amendment in Protection of Economic Reforms Act, 1992, made through Ordinance No XXI OF 1999, vide Article 270AA of Constitution of Pakistan. Thus refuge under this law is not possible as claimed by FBR.
The third point of FBR's clarification is: "The authors have further referred to a large no of SROs alleging that the same were issued to extend undue favours to political favourites. This allegation is far from reality for the reason that concessionary SROs are issued to encourage trade, investment and exports".
Can FBR quantify the benefit to "trade, investment and exports" (all going down) due to SROs issued by it? Yes loss of revenue was immense as admitted by Finance Minister at the floor of National Assembly and then on the directions of IMF he agreed to stop issuing new SROs by FBR (though the malpractice still continues). The various newspapers periodically expose loss of revenue due to abuse of SROs and FBR must be aware of all of these [for example, 'Misappropriation in sales tax concessions on imported goods detected', The News, February 27, 2015, and many others]. We can provide them details of all such stories, if they are serious to recoup the losses.
The World Trade Organisation (WTO), in its report prepared for fourth Trade Policy Review of Pakistan (March 24 & 26, 2015), observed that in Pakistan "the decline in revenue can be attributed to a number of factors, most notably widespread tax evasion, a wide array of tax exemptions, and failure to widen the tax base (FBR still says it is effective and useful institution!). "Furthermore, the prevalence of Statutory Regulatory Orders (SROs), which are discretionary measures providing tax and tariff exemptions and relief to vested interests, are a significant drain on fiscal revenue", it added. The report highlighted the following points:
1. According to an estimate, the issuance of 4,500 SROs have resulted in forgone tax revenue of Rs 650 billion. The use of ad hoc trade policy instruments under SROs remains common and severely undermines the predictability of the trade regime; it also supports a culture of rent-seeking.
2. After tariff rates amended annually in the Finance Act, Federal Board of Revenue (FBR) enjoys authority to provide tariff exemptions/concessions, and to add or modify import rules.
3. Though a number of SROs were withdrawn during 2014, but the system continues casting doubts about transparency and fiscal discipline.
4. Exemptions and partial exemptions provided for industries under the SRO regime are a central source of deviation from the most-favoured nation (MFN) rates.
5. Transparency, and therefore analysis, of the level and structure of Pakistan's tariffs has greatly complicated the large number of exemptions and partial exemptions which are announced separately through SROs and do not affect the customs duty rate shown in the customs duty column of the tariff schedule.
6. SROs also specify whether specific products are exempted from sales and other domestic taxes, as well as rules and ordinances affecting imports. Although available on the FBR website, separate SROs make it difficult to discern the applicable taxes and other measures imposed on individual tariff items which may be covered under multiple SROs.
7. SROs often provide the exemptions for inputs for certain industrial sectors. By confining regulations to select sectors these exemptions operate as a de facto licensing scheme.
8. The most prominent exemptions applicable to the industrial sector were provided in three SROs accounting for 23 percent of Pakistan's imports in 2009-10.On average, companies or industries under these three SRO provisions receive concessions up to around 11 percentage points from the statutory rates, applied non-uniformly across the industries. In addition, a comprehensive scheme of exemptions in the automotive sector, which discriminates by type of market (Original Equipment Manufacturer (OEM) versus after-sales parts), is implemented under SRO 656(I)/2006, auto-vendors under SRO 655(I)/2006 and SRO 693(I)/2006. Although the FBR website indicates that a number of SROs have been rescinded in 2014, the system of SROs continues to hamper transparency.
9. It remains difficult to provide a clear picture of which concessions/exemptions continue to operate and to assess their incidence. The extent to which new exemptions and concessions extend, replace or duplicate previous ones are often unclear as is the number of amendments that have been made to some of these SROs. Their use makes the tariff regime complex and less transparent.
10. By altering the structure of tariff incentives unpredictably, with uncertain effects on resource allocation, these concessions and exemptions may counteract economic efficiency by raising tariff and increasing effective rates of protection.
11. The cost of exemptions and concessions as a result of import-related SROs amounted to Rs 137 billion during the financial year 2013-14. It is worth noting that Pakistan is committed to eliminate most tax or customs tariff exemptions or concessions granted through SROs and to approve legislation by end-December 2015 to permanently prohibit the practice as part of the request for financial assistance from the IMF. The FBR maintains lists of active SROs for both imports and exports. In the case of imports some 92 SROs remain active. Out of this overall number, some 38 active trade-related concessionary SROs, introduced between 1991 and 2010 hamper trade, increase the cost of doing business and breed malpractice. The regime is complex, discriminatory and lacks transparency.
It is well-established that through SROs the mighty sections of society are provided "legal ways" to amass more and more wealth-according to a report exemptions and concessions given to them were of Rs 5,500 billion in the last 5 years alone as admitted by Chairman FBR before the Senate Standing Committee on Finance & Revenue on May 13, 2014. The glaring examples of abuse of delegated power through SROs reflected in the past in beneficial notifications for sugar and steel industries owned by men in power. Bureaucracy is also beneficiary of these powers, eg, SRO 569(I)/2012 issued on 26 May 2012 providing that government officials in grade 20-22 would pay just 5% tax on their monetized transport allowance as a separate block of income. Can FBR refute it as well? Is it for the benefit of economy?
The points raised by FBR in its rejoinder to our article, as elaborated above, are incorrect. FBR, instead of advising us to "a factual check before levelling such allegations", should check its own track-record, performance, correct legal position on Protection of Economic Reforms Act, 1992, and Press reports relied/quoted by us.
We stand by what we concluded in our article ('Politics and 'business wars', Business Recorder October 7, 2016) as under:
Politics in Pakistan now presents an ugly picture where business wars are aimed at preserving own empires and destroying that of the opponents. Nobody is serious to investigate the allegations of tax evasion or corruption. The real agenda is to use it as political weapon to hide one's own wrongdoings and win elections.
"Our rulers and majority of businessmen are hooked on ill-gotten wealth/income for the last many decades. The businessmen know for certain that after every two or three years, there would be an amnesty scheme giving them a chance to get their income/assets whitened by paying far less an amount than what they would have been required to pay under normal income tax/wealth tax regime. It is a tragic situation where the entire State apparatus is subservient to those who blatantly manage to hide their income and wealth. It is an ugly joke with those who are paying their taxes honestly at much higher rates than those offered to tax evaders".