Huzaima Bukhari and Dr Ikramul Haq

At the close of fiscal year 2013-14, the Federal Board of Revenue (FBR) once again proved that it can go to any extent to show inflated collection figures knowing that there is no authority in the country that can punish it for such unlawful acts. The persistent finagling of revenue collection figures by FBR has been pointed out by the independent analysts and foreign donors, but the Public Accounts Committee and/or Standing Committees on Finance & Revenue of Senate and National Assembly have never ordered any inquiry into the matter, let alone punishing the culprit.

FBR never discloses in its monthly collection reports how much undisputed refunds are payable, but unlawfully withheld/blocked. On the closing date of the fiscal year, the refunds payable but withheld must be subtracted from the gross revenue receipts to determine the actual revenue collection. FBR subtracts only the actual refunds paid, whereas accrued and ascertainable liability of refunds should also be taken into account to reflect the true picture of net revenue realised during a financial year. It is shocking that Ishaq Dar, a qualified chartered accountant, has also ignored this established norm of accounting in all the years he has been the Finance Minister of the country. It is obvious that this manipulation is aimed at showing higher collection figures to foreign lenders, especially IMF, the World Bank and Asian Development Bank, to secure more and more funds for self-aggrandisement. FBR on its own cannot indulge in this illegal act unless backed by the government of the day.

FBR during the last many years has persistently failed to achieve the downward revised targets, what to speak of originally fixed in the budgets. For the just ended fiscal year, the original revenue target was Rs 2475 billion that was later reduced to Rs 2,345 and finally to Rs 2,275 billion. FBR even to achieve the second revised target of Rs 2,275 billion blocked refunds of billions of rupees and secured huge amounts of advances from banks, large companies and public sector enterprises.

FBR had forced the companies, association of persons and individuals to pay their quarterly installment of advance income tax pertaining to next year. The aim was to collect extra Rs 40 billion through advance income tax of the first quarter (July-September) of next financial year 2014-15. For extorting more funds, the FBR implemented taxation measures announced in budget, prior to its approval from the Parliament, through Statutory Regulatory Orders (SROs). FBR issued SRO 420 to impose 17 percent sales tax on imported leather goods and garments. Through SRO 421, the FBR increased sales tax on steel melters and re-rollers to Rs 7 per electricity unit, up from Rs 4. It also increased sales tax on supply of ship plates to Rs. 6,700 per ton from Rs 5,862.

Blocking of income tax and sales tax refunds by FBR to meet targets is an established fact. On April 23, 2014, the Chairman FBR admitted before the Senate’s Standing Committee on Finance that refunds of Rs. 97 billion were blocked. This was not the first time that FBR’s Chief made such a confession. Way back in 2005, in a statement before Public Accounts Committee the then Chairman admitted that refunds worth Rs. 321 billon due to banks as on 30th June, 2005 were not paid. He also admitted that collection for the financial year 2004-05 was overstated to the extent of Rs. 20 billion at least by securing advances.

It is alleged by many that figure of Rs 97 billion of blocked refunds disclosed by Chairman FBR before the Senate was understated and it could not be less than Rs. 150 billion. The only way to determine the correct figure would be through the audit of FBR’s affairs by an independent accounting firm. One hopes that this issue will be raised by the members of Opposition in Senate and National Assembly in the forthcoming sessions.

The figure fudging by FBR is not confined to the FY2005 or 2014—this is a perpetual annual practice. Had the Public Accounts Committee taken stern action against the FBR’s Chief who admitted before it on November 16, 2005 manipulations for showing higher collections, things would have been much different today. On the contrary, the culprits that year and thereafter received awards and rewards. Thus not only the government but Parliament is also to be blamed for encouraging the FBR data manipulators.

Behind the “brilliant performers” of the FBR (sic) are acts of deceit, manipulation and flagrant violation of law. This kind of jugglery of figures is a crime and national disgrace. It confirms the abuse of a system at the highest level. The top official of FBR and their political bosses indulge in a malpractice, simply unthinkable in any civilized society. The latest episode of “16 percent growth in tax revenues” is yet another drama staged by Dar and the crafty bureaucrats of his ministry. Interestingly, the top brass in Ministry of Finance and FBR—team of data manipulators—has done this right under the “vigilant” (sic) eyes of the IMF! This is a serious situation—this kind of malpractice has distorted the image of the entire tax machinery. Those who genuinely achieved their budget targets have also lost their creditability. The collection reporting by FBR is no longer reliable. The time has come to dismantle FBR and replace it with the National Tax Authority, an independent body run by professionals and not controlled by bureaucrats.

FBR for the fiscal year 2013-14 claimed to have collected around Rs 2,266.4 billion (provisional figure). This was done by creating fictitious demands of billions of rupees, blocking refunds of nearly Rs 100 billion (as Chairman FBR himself admitted) and securing advance tax that was yet not due. The collection, though overstated, shows shortfall of Rs 209 billion vis-à-vis the original target of Rs 2,475 billion, Rs 79 billion against the first revised target and Rs. 9 billion of the final downward revised target.

In fiscal year 2012-13, FBR failed to collect the three times downward-revised budget. The massive shortfall of Rs 444 billion pushed fiscal deficit to 8% against the budgeted target of 4.7% of GDP. FBR collected only Rs 1,936 billion against the target of Rs 2,381 billion—at 3%, it was the lowest growth in 13 years. In fiscal year 2011-12, there was shortfall of Rs 75 billion, even though the target was revised downward to Rs 1,952 billion. In 2010-11, the shortfall was of Rs 38 billion, but the then Chairman FBR made a false claim of collection of Rs 1,590.4 billion against the revised target of Rs 1,588 billion. The media exposed manipulation and later FBR retreated and admitted that actual collection was only Rs 1,550 billion. Strangely, nobody was punished even after confession of cheating and fraud. The same thing will happen for this year and the finagling with figures will continue unabated—the FBR people will as per past practice even get rewards and bonuses! This is height of shamelessness, to say the least.

FBR is an epitome of inefficiency, corruption, indiscipline and high-handedness. It has failed on all fronts: collection targets, widening of tax base, countering tax evasion and avoidance, recovery of arrears, voluntary compliance and reform process. It has been written time and again that FBR is guilty of criminal negligence in not taxing persons having taxable incomes, but extorting money from those who earn below taxable income—majority of the people subjected to withholding taxes have below taxable incomes but there is no mechanism to automatically refund them what was withheld.

On the one hand, the FBR has resorted to all kinds of negative tactics to show higher tax collection, and on the other it miserably failed to collect income tax from the powerful. The majority of much-talked about 700,000 super-rich remained outside the tax net by June 30, 2014. Retrieval of tax losses of billions of rupees was possible, but ruling elite was not interested at all as it would mean action against itself, which they could not afford. The indirect taxation suits them as it makes them richer by passing the tax incidence on to the poor. Regressive taxes take larger part of the small income of the poor and make their lives more miserable. Dar has made tax system more pro-rich and anti-poor by enhancing the burden of indirect taxes.

Small business houses and salaried persons, already heavily taxed and victims of fiscal high-handedness through withholding taxes, would suffer further. FBR wants to collect taxes at source sitting ideally. It is evident from the fact that even after publishing tax directory of all those who filed returns for tax year 2013, it is not interested in punishing the non-filers according to the law. It is high time that it should take action against rich lawyers, tax consultants, doctors and other professionals, high-ranking civil-military bureaucrats, parliamentarians and businessmen, including their dependents, who have amassed colossal wealth, but are not paying income tax. They should be asked how they afford life of luxury with the meagre incomes they declare, if at all, with the FBR. Since FBR is not inclined to take action against the powerful segments, it resorts to all kinds of negative tactics to show inflated collection figures by blocking genuine refunds and raising illegal demands and unlawful collections.

(The writers, tax lawyers and partners in law firm, HUZAIMA & IKRAM (members Taxand: www.taxand.com), are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS)