Huzaima Bukhari and Dr Ikramul Haq

The claim by our honourable Finance Minister that Federal Board of Revenue (FBR) has met, rather exceeded the target for fiscal year 2015-16, has been contested by many—from experts to commoners, from newspaper reporters to respected editors. It is unfortunate that credibility of the government vis-à-vis fiscal data is once again under question. The charges of fiscal gerrymandering should be probed by the Special House Committees of Parliament, Public Accounts Committee and the Auditor General of Pakistan as their constitutional obligation. This is a very serious matter that should not go unnoticed.

In a report, Non-tax revenue: Rs 195 billion included in taxes to claim lofty collection, Business Recorder, July 3, 2016, it is revealed that Rs. 195 billion collection on account of non-tax revenue is shown as “other taxes” to claim “higher tax collection”. It says: “Finance Minister Ishaq Dar has transferred non-tax revenue collection of Rs 145 billion on account of Gas Infrastructure Development Cess (GIDC), a dedicated fund for construction of Turkmenistan, Afghanistan, Pakistan and India gas pipeline (TAPI), under other taxes. It was placed under non-tax revenue till 2013-14. Additionally, the Finance Minister also included non-tax revenue of Rs 30 billion on account of Natural Gas Development Surcharge (GDS) under other taxes. It was placed under non-tax revenue till 2013-14.”

The charges of figure fudging, if true, can lead to disqualification of Ishaq Dar. The Opposition members in Senate can refer the matter to Speaker under Article 63(2) of the Constitution of Pakistan. Earlier, the exporters made serious charges against the worthy Finance Minister that “he has been personally responsible for blocking refunds to show higher collection figures to IMF.” Though FBR refuted it, the fact remains that Dar admitted before the National Assembly’s Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatisation on November 26, 2015 that refunds of Rs. 200 billion were pending. Can a person remain member of Senate after making a confession that moneys (amanats) due to persons are not paid intentionally and these are withheld to show higher tax collection?

The Express Tribune in of its editorials made the following remarks:

Finance Minister Ishaq Dar has wasted no time in blowing the trumpet on Pakistan meeting its tax collection target for FY2016, but refrained from discussing the measures applied to achieve it. Mr Dar didn’t mention stuck refunds in this speech, but every now and then gives a statement reiterating that they would be returned. Meanwhile, the FBR keeps the money, balances its books and collects advance tax in billions to show higher collections. 

Pakistan Today, in a report observed that “after withholding all the tax refunds during the last fiscal year and forcing companies to pay advance income tax, the Federal Board of Revenue (FBR) announced on Friday that it had achieved the tax revenue collection target of Rs 3.1 trillion set for Fiscal Year 2015-16.” It further says that “FBR was holding more than Rs 250 billion in tax refunds during the last fiscal year. The tax refunds were kept to maintain the tax revenue target agreed with the IMF.”

The meeting of target by FBR through undesirable means is aptly highlighted by journalist Shahbaz Rana as under:

“…that the overall collection of Rs3.1 trillion was a result of one of the largest clandestine operations, as the FBR took over Rs150 billion in advance taxes from oil and gas, telecommunications and banking companies. The government also blocked payment of over Rs250 billion genuine refunds of the taxpayers”.

Strangely, the worthy Finance Minister instead of tackling undocumented economy and bridging monstrous tax gap, opted to increase sales tax rate on some items and impose regulatory duty on numerous items (Dar’s mini-budget, Business Recorder, December 1, 2015). It is a matter of record that besides using highhandedness and negative tactics highlighted above, in order to achieve the tax target for 2015-16 the government resorted to many mini budgets that included increasing regulatory duties on more than 300 items in December 2015.

The following observations made in an op-ed by Uzair M. Younus should be an eye-opener for the worthy Finance Minister and his team in Ministry of Finance and FBR:

Pakistan’s narrow tax base has routinely contributed to the country’s numerous economic crises. The current government came to power with a mandate to widen the tax bracket and take measures to eliminate fiscal leakages. Despite the rhetoric, Finance Minister Ishaq Dar and his team have been unable to plug leakages and boost revenue collection. According to the latest data, tax exemptions led to a loss of almost Rs400 billion, which is 4.5 per cent less than the previous year. While this is a slight improvement, the devil is in the details. In June 2014, the government began withdrawing Statutory Regulatory Orders and withdrew Rs227 billion worth of exemptions. The government has also instituted amnesty schemes in a bid to widen the tax bracket. These measures should have led to a dramatic improvement in Pakistan’s revenue-generation capabilities, but that has not been the case. This is because these policies have shied away from substantial reforms, resulting in a tax-to-GDP ratio of below nine per cent.

Federal Board of Revenue in a Press release issued on July 5, 2016, strongly denied reports appearing in a section of press that non-tax revenue has been included in the taxes and duties collected by FBR to overstate the figure of tax collection. Press release says:

“The FBR through its sustained and untiring efforts was able to achieve and surpass the revenue targets for the just concluded financial year and the above referred report is an attempt to undermine the efforts of the FBR and the government resulting in a more than 20% increase in collection over that recorded for the preceding year. As per the provisional collection figures, FBR has made a net collection of Rs 3112 billion for the year ended 30th June 2016 as against Rs 2589 billion collected in the year ending on 30th June 2015 thereby registering a 20% increase over the last year. In order to dispel the misconception regarding inclusion of non-tax revenue FBR wants to inform that in the year ending 30th June 2016, it collected Rs 1217 billion as Income Tax showing a growth of 18% over the last year, the collection of Sales Tax in this period was Rs 1357 billion with a growth of 19%, Rs 401 billion were collected under the head of Customs duty thereby giving an increase of over 30% as compared with the last year and Federal Excise Duty to the tune of Rs 192 was collected thus reflecting an increase of 11% over the collection for the last year. After deducting the cash refund of Rs 54 billion disbursed during the period the net collection of Rs 3112 billion against the assigned target of Rs 31104 billion was recorded.

The above figures clearly show that FBR achieved its assigned revenue targets through its own efforts and from streamlining the collection of taxes and duties that fall in the purview of FBR and no non-tax revenues were accounted for by the FBR to inflate its revenue figures. FBR also wants to highlight that the originally assigned targets have been achieved without any downward revision which is an unprecedented accomplishment and speaks of the success of the economic policies being followed by the present government. The most disturbing feature of tax administration is that the number of tax filers is going down and the government is content to just extort some additional tax from non-filers rather than imposing tax on their actual incomes”.

Though the FBR and Finance Minister are taking credit of “extraordinary” (sic) performance, the fact remains that 61% of total collection came from indirect taxes. If withholding taxes and tax paid as advance under section 147 of the Income Tax Ordinance, 2001 and with returns are added, the percentage is as high as 92% meaning by over 22,000 staff of FBR collected just 8% tax through its own efforts that is by way of audit of declared declarations or by bringing new taxpayers in the net.

Income tax collection in fiscal year 2014-15 was Rs. 1033.7 billion and projection for 2015-16 was Rs. 1307 billion. The actual collection as per FBR is Rs. 1216.9 billion. It means failure to meet the direct tax target! In 2014-15 collection of sales tax was Rs. 1088 billion, customs Rs. 306 billion and FED Rs. 162 billion. For 2015-16, the projections for sales tax was Rs. 1230.3 billion (actual as per FBR is Rs.1357.1 billion), Customs Rs. 348.5 billion, (actual as per FBR is Rs. 401.2 billion) and FED Rs. 200.9 billion (actual as per FBR is Rs.191.6billion). If we subtract just the admitted withholding of refunds of Rs. 250 billion, there is no growth in collection, where the same is claimed to be over 15% by the worthy Finance Minister!

It is high time that ICAP, ICMA, tax bars, economists and members of Opposition in Senate and National Assembly should raise their voice against fiscal gerrymandering as highlighted by many. The country cannot progress unless all the citizens pay their taxes honestly, and they are ensured that money collected from them would be spent on public welfare and not on the luxuries of a few. (The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)