SOHAIL SARFRAZ

ISLAMABAD: Former Finance Minister Dr Salman Shah has said that the only focus of Federal Board of Revenue (FBR) is to generate maximum revenue by hook or by crook to meet the annual target of Rs 3.621 trillion for 2016-17.

Speaking as a guest on ‘Paisa Bolta Hai’ with Anjum Ibrahim, he said that the tax reforms which are critical for the economy, has not been implemented.

At present, the focus of FBR is to generate maximum revenue one way or another. During this exercise, the FBR is least bothered about the existing taxpayers who have been burdened whereas the tax net is not being widened to bring in new taxpayers. These are considered secondary issues and entire focus is on generating additional revenue to meet targets. The equity in the taxation system is not the priority of the present government.

During the tenure of Musharraf regime, the focus of the government was to expand the tax net and introduce reforms in the tax administration through a Tax Administration Reforms Program (TARP) aimed at training tax officials, improving their capacity, better pay structure and creation of reformed units like Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) by using new IT technology and improvement in audit, he said.

In the history of Pakistan, the introduction of tax reforms in FBR has always remained a very difficult and challenging task because different governments have totally failed in implementing reforms in FBR.

Masood Naqvi, Chairman Tax Reform Commission (TRC) said that Pakistan is the only country in the world where maximum efforts have been made to reform the tax system. After every 1-2 years, a commission or committee comprising of experts in the field actively work on the tax reforms. The problem was that a number of viable recommendations were made, but the same were not implemented as required. The whole system is responsible for not implementing the reforms as there was no focus of the FBR to implement reforms in the past. For example, in order to meet the conditions of donor agencies for a specific program, the FBR met the requirements or commitments.

Naqvi said that the real problem remained in two areas. Compliance level is very low and reliance on withholding tax agents. For example, law has clearly defined the persons liable to file returns. If all non-filers come into the documentation, the number of return filers should cross millions. On the other hand, the number of filers is around one million. Around 40 million citizens are paying taxes through different sources like mobile phone or other indirect taxation. As compared to taxpayers of 40 million, the filers are not more than one million. The substantial amount of collection of the FBR comes from withholding agents, who are collecting taxes on behalf of the government. In the result, 75 percent of the collection is through withholding taxes. In this situation, the benefit of creating distinction between the non-filers and filers has not been achieved. The non-filer pays a higher rate of withholding tax and thinks he has discharged his tax ability, got immunity and do not need to do anything.

The real objective should be to first capture the non-filers into the FBR’s database and then make them filers of income tax returns. You get them into the system and ask them to file their returns. The compliance is not taking place because we are not able to enforce the provisions of the law. If the deterrent is present, non-filers would be well aware that they would be held accountable for not filing of returns, Chairman TRC said.

Tax Lawyer Waheed Shahzad Butt stated that there is lack of political will on part of government over implementation of the tax reforms in Pakistan. If a political decision is taken to collect revenue from non-filers or tax evaders, the FBR’s machinery is efficient and equipped with necessary data to go after non-filers. The government has to furnish a standard operating procedure (SOP) or guidelines to the FBR to take action against the non-filers for recovery of tax. With the same tax machinery the FBR has been able to collect Rs 1915 billion during July-Feb period of 2016-17.

Besides chasing revenue collection target, the government should give clear directions to the FBR to take action against non-filers without fear. The revenue collecting agency has developed a database to generate revenue from 3 to 4 million potential taxpayers. However, till now the number of tax filers has not exceeded the figure of one million. If 4milion taxpayers contribute their due share of taxes, there would be no justification to overburden the existing taxpayers.

The FBR recover taxes from registered persons, but offer amnesty schemes to tax evaders on reduced rates of taxes to avail the amnesty scheme.

To a query on attachment of bank accounts, Waheed Shahzad Butt said that there is always an order and tax demand behind the attachment of bank accounts of the taxpayers. The order may have been issued irregularly and improperly against the taxpayers. If there is no tax demand or order behind this action, it is a robbery.

Masood Naqvi responded that a process has to be followed for taking out money from the taxpayers’ bank account. The liability created through the said order may not be fair tax liability, but the process is followed in this regard. Presently there is a pressure on FBR to meet the revenue collection target for 2016-17. Naturally, the whole focus of the tax machinery is to generate revenue.

Some recommendations of the Tax Reform Commission report have been implemented. Now, the Tax Reform Implementation Committee (TRIC) has expedited the process of implementing the recommendations of TRC during the last two months. There is an improvement in implementation of reform process after recent change in FBR.

About recent Supreme Court case on FBR promotion, tax lawyer Waheed Shahzad Butt said that recently a grade 21 officer of Inland Revenue Service (IRS) went to court seeking the apex court’s directives to the concerned authorities to promote her to grade 22 due to seniority and on merit in accordance with the law. This shows that low rank officials have been promoted bypassing senior officials. If government wants to bypass the senior most officials, they, the should be expelled from the department. How the senior most officials could continue their job when they are not promoted after doing a lot of hard work during their carrier, he questioned.

Salman Shah said that the there is no possibility of improvement in tax system because Pakistan is an under-developed country and sophisticated tax system is imposed on taxpayers. When the sophisticated tax models of Europe and USA are applied in Pakistan, taxpayers do not have capacity to fulfill the international systems. Moreover, FBR’s discretionary powers are considerably enhanced and issues are settled through corruption.

There is a need to simplify the tax system and we have to look at the different segments of the society for taxation purpose. There should be more documentary requirements for the corporate sector. However, a shopkeeper or SME cannot maintain books of accounts like corporate entities.

About the return filing, Waheed Shahzad Butt said that the department has setup the Tax Facilitation Centers (TFCs) to facilitate return filing. The only way to check corruption is to make public tax officials assets, liabilities and income/expenses under the right to information law.