On July 4, 2017, Tariq Mahmood Pasha, a seasoned grade-22 officer from Internal Revenue Service (IRS), assumed the charge of Chairman Federal Board of Revenue (FBR). The appointment of chairman from within FBR, ignoring a few senior officers, or from outside, always attracts criticism from some quarters. Selections of two previous chairmen, one from IRS and other from Pakistan Customs Services, were also detested by their seniors and dubbed them as "political appointees". The same would have been the case with them if "selected" for the much-sought-after position!! The same was the case with persons coming from outside-all accused of serving the political masters. In a nutshell, every posting of chairman FBR has been controversial, having political overtones, and always disliked by those not selected!!!
During the hearing of the Panama case and later in the judgement there are strong observations and even strictures by the Apex Court that FBR is muzzled by the ruling party through political appointments. The same is the case with other agencies like FIA and NAB that have to counter the financial crimes. So any change of guards in FBR without the much-needed and much-delayed fundamental structural reforms is nothing but a routine exercise. On papers, FBR is an autonomous institution, formed and constituted under the Federal Board of Revenue Act, 2007, but in reality it is yet another government department. The Finance Minister of Pakistan owes an explanation to the Parliament and people for not implementing section 6 of the Federal Board of Revenue Act, 2007. But he is busy defending himself against money laundering charges in the Panama case where he is one of the respondents.
The people are convinced that for them mere change of chairman at FBR does not matter unless the tax system is reformed to help growth and generate the revenues as per real potential, which is not less than Rs 8 trillion [Tapping the real tax potential, Business Recorder, March 24, 2017]. They are of the view that the new captain of FBR will also not stop field formations from arbitrary taxation and negative tactics to squeeze the existing taxpayers as was done in the past by his predecessors as he has to meet the target of Rs 4 trillion set for the current fiscal year (2017-18). The FBR faced this year a huge shortfall and still it has to clear refunds of billions and adjust advances taken to meet the targets. Therefore, unless some fundamental changes are made the story of early years will be repeated. The position, however, can change if comprehensive reforms are made as suggested in "Meaningful budget proposals", Business Recorder, April 21, 2017.
It is unfortunate that FBR has become an institution for appeasing the political masters and destroying the business climate. 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 has been appreciating FBR and even distributing cash rewards and bonuses to his favourites.
FBR is "looked after" (sic) on a daily basis by a business magnate designated as 'Special Assistant to Prime Minister on Revenue/Minister of State'. On the website of FBR, it is mentioned that he has interest in various companies. Non-disclosure of the source of remittance by a public office is a serious matter. The immunity from probe available under the 1992 was withdrawn with effect from December 16, 1999 vide Protection of Economic Reforms (Amendment) Ordinance, 1999. Even otherwise, the said immunity cannot be availed for money laundering or pleaded as a bar to disqualify a public office holder on account of corruption and/or any other malpractices. Thus tragedy with FBR is not merely appointment of chairmen on political basis, but its abuse by political class that is involved in massive tax evasion.
It is a matter of record that appointments of chairmen of FBR during the last 10 years - from Sohail Ahmad to Salman Siddique to Mumtaz Haider Rizvi to Ali Arshad Hakeem to Ansar Javed to Tariq Bajwa to Nisar Khan to Dr Irshad - 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 & Revenue that tax reforms had miserably failed.
At the end of the six-year-long Tax Administration Reforms Programme (TARP), FBR after spending millions of dollars of money received under TARP and otherwise, could not reach even near the tax-to-GDP ratio of 12.5% achieved in 2002-2003. On November 10, 2015, the then chairman FBR, 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. Since his days huge refunds have piled up and Finance Minister is not ready to pay all these in one go to show higher (sic) collection. Adding insult to the injury, Special Assistant of Prime Minister on Revenue keeps on accusing businessmen of evading billions every year by under-reporting, submitting incorrect declarations etc but takes no action!! He never explains how tax evasion is possible without the connivance of tax collectors.
Unfortunately, however, no action has ever been taken against FBR's high-ups for causing losses of billions of rupees every year to national exchequer. It is strange that the Standing Committees on Finance & Revenue of National Assembly and Senate have also never recommended removal and punishment 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. After the Panama and the Bahamas Papers no meaningful changes in tax codes have been suggested or made through Finance Act, 2017. When facilitation of mafias is intended, even Presidential Ordinances and statutory regulatory orders (SROs) are issued overnight. This confirms existence of an unholy alliance between parliamentarians and tax collectors. Both are beneficiary of the existing system. Ours is strange country where even parliamentarians openly admit that votes are purchased. In last Senate elections, admittedly one seat was sold for over Rs 100 million proving that politics is a highly lucrative business in Pakistan. Tax Directories for 2013 2014 and 2015 though show laughable quantum of incomes by majority of elected members!! For men sitting in parliaments, FBR's chairman is a friendly figure and not a Tax Czar as elsewhere.
The Panama and the Bahamas Papers and information from other sources show that our elected representatives and many other individuals have assets outside the country-mostly held benami. But Special Assistant of Prime Minister on Revenue says no action is possible beyond five years. Why did he not suggest amendments in tax laws in the Finance Bill to remove this limitation for retrieving enormous tax losses caused by looters and plunderers of national wealth? Why should they be given such protections and immunities? FBR should have been equipped to deal with tax evaders but political masters want to stick to obnoxious laws like section 5 and 9 of the Protection of Economic Reforms Act, 1992 and section 111(4) of the Income Tax Ordinance, 2001 to give protection to them and themselves. People of Pakistan say in these circumstances how any chairman of FBR can show 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 even do not pay income tax as per law on their substantial agricultural income. Would the new Chairman enforce the law and tax the rich classes or like his predecessors, just pay lip service to FBR's motto: vision, mission and value? These questions, people say, have no relevance in our peculiar political milieu where the mighty flout rule of law and punish those in public service who resist their highhandedness.
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 do not pay due taxes. They flout tax laws with impunity yet FBR expresses satisfaction 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 2016, FBR and provincial tax agencies have miserably failed to improve voluntary tax compliance through strong deterrence system. Tax culture will never improve unless deterrence is created along with assurance to people that taxpayers' money is actually being spent for public welfare.
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 biggest challenge before new Chairman is to work on making FBR an efficient tax authority, details are available in 'Meaningful budget proposals', Business Recorder, April 21, 2017 and 'Need for National Tax Agency', Business Recorder, November 1, 2013.
It is high time that FBR stops harassing the compliant taxpayers and protecting the cheat. It should have zero tolerance for non-filers and tax evaders. 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.
As elaborated above, the challenges before the new chairman are enormous-the most daunting one is how to undo the ugly legacy of cronyism, favouritism, nepotism and mediocrity. Will he be able to rise to the occasion? Only the time will tell.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at the Lahore University of Management Sciences)