Last Updated on Tuesday, 30 November 1999 05:00 Friday, 29 July 2011 10:31
The Federal Board of Revenue (FBR) - apex body responsible for collecting federal taxes - has earned notoriety in all areas of management: from misreporting figures to bungling of funds, from corruption to highhandedness and from inefficiency to worthlessness. As a result, people do not want to be on the tax roll, though ready to pay bribe.
They are both suspicious and fearful of the FBR. Through this modus operandi, FBR is depriving the country of billions in taxes, which obviously go into the pockets of the corrupt officials. The Auditor General of Pakistan, in each annual report, has pointed out that the FBR is guilty of mismanaging its financial affairs. Funds given to it for day to day running and reforms are wasted, squandered and bungled with impunity. It is a tragic situation. How can the FBR be trusted with the collection of taxes, widening of the tax base and fiscal management when its own house is in an utter mess?
In recent years, public dissatisfaction with the FBR has increased in alarming proportions. The recent episode of false claims of exceeding the tax target of Rs 1588 billion, by taking billions in advance from corporate bodies, blocking of genuine refunds, creating false demands, tax leakages, frauds in clearing goods, connivance with smugglers and tax evaders - just to mention a few - have once again proved that the FBR s affairs are in shambles. Not only as an organisation has it lost its usefulness, it is proving to be counterproductive for the very purpose for which it was established.
It is a matter of great concern that on the one hand, the FBR s own affairs are a subject matter of serious criticism from the Public Accounts Committee and the Auditor General of Pakistan while on the other it has been perpetually creating an atmosphere of indifference towards compliance of tax laws in the country.
At this critical juncture of our history where the economic survival is at stake, collection of taxes has become a matter of life and death for the government in power. The nation as a whole needs to strive really hard to emerge from this crisis. Taxes should be paid by everyone under the law, including the mighty civil-military bureaucrats, judges, professionals, politicians, wealthy businessmen and agriculturists. If these segments of society pay their taxes honestly and diligently others will certainly follow suit.
Pakistan has a tax potential of at least Rs 8 trillion whereas the FBR could not even collect Rs 1550 billion during the fiscal year 2010-11. It resorted to all kinds of negative tactics but yet there was huge shortfall that was tried it to cover up by manipulation. It was exposed by the media. It is an established norm that if in a society the powerful do not submit to the rule of law, the other strata of society, automatically resort to lawlessness. Pakistan has been suffering from this malady since long, but the ruling elite is not ready to budge. It has even started making open defiance of the orders of the apex court. This is an extremely alarming situation that may lead to a collapse of the system.
The rule of law should be a principle for everybody, not just for the weaker ones. The worst aspect of our tax system is its inequality and non-enforcement of tax codes, where the rich and mighty are involved. The Income Tax Ordinance, 2001 gives unprecedented concessions and benefits to the rich and mighty. For example, it taxes profit earned by a widow on her bank account @ 10% irrespective of any tax limit (it is Rs, 350,000 for businessmen), but grants tax concessions to commercial units run by the Army Welfare Trust (sic). This is sheer mockery of law.
The FBR has been brutally politicised by successive civilian and military governments in Pakistan. The high-ranking postings in the FBR are made to specifically serve as a handmaid of the political masters and in return for this favour, the FBR s high-ups serve their interests much beyond their expectations! They try their utmost to appear more loyal than the King. This was confirmed in June when the top man required them to show that the budget target was exceeded by fudging the figures and they obliged him readily rather than resisting.
In the past, there was a famous case of awarding contracts to Cotecna, (a Swiss company) for kickbacks using the Chairman FBR s office. It was a classic case of close connections between the political rulers and tax administrators. It shows how the FBR s high-ups deprive the nation of billions of rupees to please their political masters. In the process they, of course, make a fortune for themselves as well.
It is a matter of record that one ex-Chairman FBR was declared a proclaimed offender in a criminal case. Yet another Chairman joined hands with the rulers of the day. He issued numerous beneficial notifications for various industrial units of his benefactors. He himself owns (through the family) a number of steel re-rolling mills.
During his tenure as Chairman FBR, his mills supplied defective products to a foreign company. Due to this criminal act, the image of the country was badly tarnished in the eyes of foreign investors. Now the present one has been caught red handed in borrowing billions from taxpayers to show that the budget was exceeded, whereas the so-called taxes collected were returned within days as refunds - this calls for criminal proceedings as forgery, perjury and fraud were simultaneously committed.
There are numerous cases to confirm the fact that due to FBR s policies of favouritism under the command of various chairmen, the national exchequer suffered losses of many billions of rupees. Even the mighty NAB just released the ex-Chairman of FBR, after plea bargaining, for mere peanuts compared to what the man amassed as a public servant.
As far as the FBR is concerned, the process of accountability proved yet another farce in Pakistan. The episode of the arrest and release of one ex-chairman, who was equally popular with both Mohtarma Benazir Bhutto and Nawaz Sharif, testifies to it! Since he served both the regimes faithfully, they defended him with extreme loyalty.
This is the story of the FBR in a nutshell. This body is nothing but synonymous to mismanagement, corruption and inefficiency. Political connections matter in this organisation. During the military regime sycophancy was the real tool-one celebrated chairman used to dance for Musharraf, caught on camera at a gathering typical of the Rangeela Mughal Emperor during the days of the Great Decline.
The purpose behind securing the powerful and lucrative post of the Chairman FBR has always been dual; enabling the corrupt rulers to amass money and to twist the arm of their political rivals. In the process, the Chairman FBR benefits not only by making substantial financial fortune but also secures after-retirement-contracts.
It is a sad reflection of our fiscal management. The inefficient, ready-to-obey-any-command- from-political-masters, corrupt and incompetent hold key posts in the FBR. They always hoodwink the government of the day by shifting the blame of low revenues and massive tax evasion on the traders and businessmen, even though they are the real culprits. They encourage profit-hungry traders and businessmen not to pay taxes but to just give them their due share. Mass-scale evasion of taxes is never possible without the connivance of tax administrators - actually national traitors. Their true nomenclature in Pakistan should be tax adminis-traitors .
The tax-evaders and tax administrators together constitute a mafia that has made Pakistan a haven for tax dodgers and plunderers of national wealth. They have been encouraging drug traffickers and criminals to bring as much money as they want to Pakistan through normal banking channels with no questions asked about their source - this has been given legal coverage through section 111(4) of the Income Tax Ordinance, 2001.
This facility, they claim, is necessary for the growth of the economy. Such lethal prescription for economic growth has actually destroyed the entire social fabric of the society. The inner story is that mafia-like operations and collaborations exist between the tax administrators and tax evaders, who are criminals engaged even in the smuggling of arms and drug trade.
The unscrupulous politicians and FBR s high-ups are directly connected with the tax evaders and criminal people, and the policies designed and implemented by them are meant to protect such elements. The outcome is total destruction of our socio-economic system. The tax evaders, drug barons, land mafia, arms and drug smugglers bribe and control corrupt officials in the civil-military bureaucracy and unscrupulous politicians.
They are de facto rulers of Pakistan while the rest of the population remains a helpless lot. Policies of appeasement towards profit hungry traders and greedy businessmen, who do not pay their taxes, are not without any personal interest. The policy-makers in the FBR are properly compensated for this kindness .
Things have changed for the worst under the present regime that lays tall claims to be the custodians of Bhuttoism - the philosophy of uplifting the downtrodden masses of Pakistan and ending exploitation by all. Zulfikar Ali Bhutto imposed for the first time in the history of Pakistan tax on the rich agriculturists and introduced land reforms. However, under Zardari the rich have received unprecedented benefits and many harsh, illogical and unfriendly tax measures have been taken against the less privileged people, especially the poorest of the poor.
One wonders how the PPP keeps on harping the tune of Bhutto s legacy while in reality, doing everything to the contrary. During Zardari s control of affairs, behind the scene, immense benefits have been secured by tax dodgers, criminals, plunderers of national wealth and drug barons - for example in the last week of June 2011 unprecedented tax amnesties were announced by the FBR to entertain certain quarters. Once again, the honest taxpayers were discriminated while criminals and socially undesirable elements were allowed to evade taxes and duties.
The FBR has been instrumental in encouraging black money (emanating from all sources, including terrorism, arms and drug trade) in Pakistan. It has been a tool in the hands of the corrupt businessmen-turned-politicians in getting enormous tax benefits through the infamous SRO system. It is an organisation of the corrupt, for the corrupt and by the corrupt. The country can never come out of this mess unless the present FBR is dismantled and reconstituted. It has to be made an independent authority run by a competent Board of Directors. The successful model of Mauritius Revenue Authority (MRA) can easily be followed.
Had the FBR been an effective and autonomous body, it could have compelled the political leaders (eg Zardari, Gilani and Nawaz Sharif) to pay their due taxes. It could have taken to task all those who got their loans written off. Instead of squeezing the existing taxpayers, it could have gone after the tax evaders.
In Pakistan, the civil-military bureaucrats, corrupt politicians-cum-unscrupulous industrialists, greedy hoarders and absentee landlords are the de facto beneficiaries of the State s resources - generated mainly by the sweating tillers and hard-working industrial labourers. Pakistan is not a poor country - the State s kitty is empty because of the unwillingness of the government to tax the rich, due to collossal wastage of taxpayers money on unproductive expenses and non-exploitation of vital natural resources. The FBR as it exists now is incapable of taxing the ruling elite as it is their own handmaid. It needs to be insulated from outside pressures, which is possible only if it is awarded an autonomous status.
The mighty segments of society do not pay personal taxes and then through their handmaid the FBR, periodically avail loathsome amnesty schemes to decriminalise their untaxed wealth and incomes that amount to sneering at honest taxpayers. Our President who, before his election on September 6, 2008, got $60 million unfroze in Switzerland, did not bother to tell the nation how much tax was paid on this colossal wealth and why it was lying abroad. The same is true for the Nawaz-Shahbaz duo and many others who first looted this nation and then shamelessly stacked away this money abroad.
The FBR has mercilessly wasted the borrowed funds of millions of dollars given for implementation of Tax Administration Reform Project (TARP). At the end of the TARP, serious in-fighting erupted between Income Tax and Sales Tax groups - they became engaged in court litigations and what not. After five years of TARP, Pakistan s tax-to-GDP ratio dipped to 9. 2% from 12. 5% in the 2000-2001. During the last many years - especially when Musharraf-Shaukat government was in power - the FBR propagated great success in every area of tax administration.
The nation was told that wonders had been achieved. Every year budgetary target was surpassed (sic) and officials were showered with generous rewards. In 2009, it was suddenly revealed that everything was a farce. All claims were false. It is now officially admitted by all that the tax base remains punctured and narrow and if inflation rate is accounted for, growth (sic) in tax collection has been negative in real terms.
There is an urgent need to revamp the FBR. It should be made an autonomous authority, free of any outside interference or pressure. It should be run by a Board of Directors nominated by both Houses of Parliament. Such a Board alone can ensure that taxes wherever due are collected without any exception. Once an independent revenue authority, headed by the public board, is established, the government would have to scrupulously respect its autonomy.
The board should be answerable to the Parliament and not the government. The board should be delegated with full financial powers on the lines of the State Bank of Pakistan. Such powers are absolutely necessary if the board is to discharge adequately its responsibility of running the tax apparatus efficiently.
The time is now ripe for making the FBR as autonomous and independent body free from its secretarial workings. The government, while undertaking to respect its autonomy and independence, may enjoy powers to issue directions of a general nature in writing, wherever necessary. Our economic survival now depends upon forming an efficient tax collection machinery, manned by skilled personnel, professionals and headed by thoroughly scrupulous persons. The process of depolarisation should be a simultaneous exercise, making the FBR a truly independent and financially autonomous organisation.
If we reconstitute the FBR on the lines discussed above, we can raise tax-to-GDP ratio to 20% in one year. The present tax gap of Pakistan, as proved by us in early columns, is 600%. A competent, efficient and autonomous revenue authority is the urgent need of the hour. At the same time, we must tax absentee landlords, speculative dealings in real estate (this would also help in promoting construction industry as prices of land come down to affordable limits) and introduce asset-seizure legislation for untaxed assets and incomes.
The appointments of chairman and members of FBR should be through a Select Committee of Parliament and not left at the whims of the ruling political party headquarters. Through public debates and democratic processes, the Parliament should devise a rational and workable tax policy after taking inputs from all the stakeholders and experts in the field.
This alone can help in broadening tax base and improving the tax-to-GDP ratio in the country - presently the FBR is extorting money by traumatising the taxpayers through a reign of terror. We need to have a paradigm shift in the tax system and the first step should be the creation of an autonomous revenue authority as discussed above.
(The writers, tax lawyers and writers of many books on tax laws, are Adjunct Professors at Lahore University of Management Sciences)
Courtesy: Business Recorder
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