Huzaima Bukhari and Dr Ikramul Haq
The Federal Board of Revenue (FBR) has surpassed the third-time revised target of fiscal year (FY) 2020-2021 and for the first time crossed the mark of over Rs 4 trillion by collecting Rs 4,731 billion, which is highly commendable against the original target of Rs 4.963 trillion set at the time of announcing budget for the previous FY. It is more praiseworthy that FBR showed an upward trend of 18% over last year, especially when the overall economic growth, according to the coalition Government of Pakistan Tehreek-i-Insaf (PTI), despite three waves of Covid-19, will be around 4% when entire data is collated.
No doubt that the FBR collects bulk of taxes at the time of clearing of goods and through numerous withholding tax provisions and advance tax pertaining to the next fiscal year. This important institution also suffers from multiple shortcomings like basic logistics, lack of modern tools, no active centre of excellence for fiscal research and administration, trained staff to enforce the various anti-avoidance provisions in all the tax laws it administers—the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, the Customs Act, 1969 and the Federal Excise Act, 2015. In this background amid the sluggish economic activities during most part of FY 2020-21 due to the third deadly Covid-19 wave, surpassing of even more difficult revised target of Rs 4717 billion by Rs 14 billion (as confirmed by a source inside FBR) is highly laudable. The same source conveyed to us on special request: “The figure of Rs 4,731 is 100 percent clean money—no advances, no preponements, no holding back of refunds. In fact, when we closed last night, we had ZERO-LITERALLY ZERO Sales Tax refunds, and zero Income Tax refunds pertaining to T/Y 2020 that I had committed upfront that these would be paid against current revenues”.
Till the time of finalising this column (July 1, 2021 at 13:15 pm), no Press release was available on the website of FBR about tax collection or tweet from @FBRSpokesperson, @ImranKhanPTI or @shaukat_tarin about achievement of FBR as well as total collection for FY 2020-21. Because of deadline, we were left with no choice but to rely on Press reports or direct quotes from high officials of FBR who wanted to remain anonymous.
In a Press report, the Member (Inland Revenue Operations), Dr. Muhammad Ashfaq Ahmad, who is also a celebrated writer, is quoted: “The last fiscal year remained phenomenal as the FBR had remained successful in clearing all the income tax and sales tax refunds claims that were filed within the fiscal year 2020-21”. He, however, reportedly admitted to the scribe the report that “previous fiscal years (2007 to 2019) refunds are pending”. The report claimed that in fiscal year 2020-21, the FBR “had paid Rs 251 billion in refunds, which were 85% higher than the preceding year. These include Rs 209 billion sales tax refunds.
The report published in Business Recorder on July 1, 2021 says: “FBR has successfully achieved the assigned revenue collection target of Rs 4691 billion for 2020-21. The tax collection has crossed the Rs 4725 billion mark. However, this is only a provisional figure and revenue collection would further show significant increase after compilation of data till 12 midnight June 30. These figures would further improve before the close of the day and after book adjustments have been taken into account. The FBR has provisionally collected Rs 4725 billion during July-June (2020-21) against Rs 3,996.7 billion during 2019-20, reflecting an increase of Rs 729 billion”.
The revised revenue target as mentioned in the above report of Rs. 4691 billion is not correct. It was Rs 4717 billion as per own admission of FBR. Dr Ashfaq reportedly told the other reporter: “There were another Rs 75 billion refunds that had been adjusted against the demand”. He also claimed that “due to reliance on post-refund audits, the FBR has also been able to neutralize Rs. 114 billion refunds which gave a signal to the exporters that where the FBR was active in giving refunds, it was also vigilant on bogus refund claims”.
The head-wise provisional collection figures conveyed to us directly by FBR source are:
• Income tax: Rs 1.7 trillion against the target of Rs 2 trillion.
• Sales tax: Rs 1.98 trillion bypassing target by Rs 384 billion.
• Customs: Rs 742 billion registering growth rate of 20% and exceeding the target by Rs 102 billion.
• Federal Excise Duty: Rs 284 billion missing the target by Rs 77 billion.
The FBR has performed satisfactorily proving many experts (not us, we said, it would exceed the target) wrong that collection could not be more than Rs 4.6 trillion at the best. Even in the Federal Budget 2021-22: Annual Budget Statement in the revised target it was shown at Rs 4691 billion. The FBR in the current fiscal year is given the target of Rs 5829 billion as per Federal Budget 2021-22: Annual Budget Statement.
It is possible to achieve, even exceed Rs 6 trillion if the proposals given in the articles ‘There’s need for new tax model’, Business Recorder, February 26, 2021 and ‘Restructuring the tax system’, Business Recorder, January 22-24, 2020] are considered seriously and implemented. It is highlighted time and again that the existing tax system needs complete overhauling to tap the actual tax potential and at the same time help economy to absorb the financial toll of Covid-19 and grow at a rapid pace.
The challenge before FBR is to enforce the law and get returns of income tax from all taxable persons as well as register all those who fall under the sales tax regime and other taxes administered by FBR. According to Finance Minister, Shaukat Fayaz Ahmed Tarin, and Special Assistant to the Prime Minister (Minister of State) on Finance & Revenue, Dr Waqar Masood, “around 7.4 million potential tax evaders have been identified”. The reality as shown in our above and other articles is that gap in income tax is 19 million and in sales tax around 2.5 million. Presently, the number of income tax filers on Active Taxpayers List (ATL) is 2,775,349 as on June 28, 2021 and majority filed nil or below taxable return.
The real potential of taxable income taxpayers and sales tax was highlighted in ‘There’s need for new tax model’, Business Recorder, February 26, 2021. At present, the entire taxable population and even those having no income or income below taxable limit are paying advance and adjustable income tax at source as mobile use, yet FBR, lender/donors/media call the people of Pakistan tax cheats. This is highly lamentable. Had this been the case how did FBR collect so much tax at source (over 45% of total collection at import stage alone)? This is anti-growth. We must collect taxes where due and not in advance. Allow the people capital formation and a growth-friendly environment with simple taxation. The relief given to small and medium enterprises (SMEs) as manufacturers up to turnover of Rs 250 million should be for retailers and others as well, without any discrimination. Low-rate tax on broad base with simple compliance procedure is needed to collect Rs 8 trillion till 2023.
(The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE))
