Futile exercise

Pakistan Tehrik-i- Insaf government is failing in its two goals—broadening a narrow tax base and enhancing revenue collection– which has started displeasing finance minister Asad Omar who sought explanation for apparent breakdown of the tax machinery. Umar expressed displeasure over Federal Board of Revenue (FBR) performance in broadening tax campaign and revenue collection in first four months of the current fiscal year. The minster rejected the excuses and reasons given by the taxmen during a visit to the FBR Headquarters before departing for China.

The PTI government has promised that it will double tax collection and broaden narrow tax base which currently comprise only 1.4 million taxpayers including the new taxpayers in the wake of tax amnesty scheme of the previous government. It is pertinent to mention that the number of active taxpayers was 2.4 million in Musharraf era although his government’s hectic drive of documentation of economy failed halfway due to the rigidity of tax collection machinery but the self assessment scheme was a total success according Dr. Salman Shah. Over the past ten years the number of tax return filers started decline and dropped to 1.2 million before the announcement tax amnesty scheme. In other words 50 percent active tax payers skipped out of the tax net.

As a part of its intended futile exercise the FBR started sending notices to non-filers of income tax returns at incomplete and invalid addresses. When the first notice bounces back, a second one follows at the same invalid address and with the third notice account of tax liability is attached with the notice which will certainly return undelivered. How come that Inspectors of Inland tax Department could collect the valid addresses of wealthy non-filers? Why CNIC based authentic tax profiling is not done with the cooperation of NADRA. How long the tax collectors will remain hand-in- glove with the tax evaders?

As a part of a campaign, the FBR has started sending notices to the big fish has started backfiring. These notices have been issued by the Directorate General of broadening the tax base on the basis of faulty data provided by the FBR Operation Wing. Of the 373 notices sent in the first phase, about 145 could not be delivered by the courier services due to wrong addresses. So far 19 people have filed tax returns. The FBR is servicing notices to tax dodgers under section 114(4) and 116 of Income Tax Ordinance. These people have purchased properties over Rs. 20 million, cars of above 1800 cc or more engine capacity or have received rent to the tune of Rs. 10 million or higher in a year.

The data of tax dodgers is not a new one. It has been with the FBR since 2010 and the World Bank and the International Monetary Fund have persistently told the two previous governments to utilise it for broadening the tax base and revenue enhancement but they did not budge on the matter. Now the incumbent government is anxious to widen the tax net but different FBR wings are not effectively coordinating with each other and there are complaints about lack of automatic data sharing by the Information Technology Wing of the authority. Data relating to more than 2500 cases of purchase of expensive properties, vehicles and receipt of high rental income by non-filers has been handed over to relevant FBR field offices.

The finance minister also expressed displeasure over the shortfall in tax revenue.  The FBR was able to collect Rs.1.1 trillion in first four months of the current fiscal year and fell short of target by Rs. 100 billion. The growth in revenue collection was less than 7 percent while October’s growth was a meager 1 percent.

The nosedive of rupee against the US dollar and other major global currencies has also depressed the revenue situation. Pakistani currency faced a hefty depreciation of Rs. 25.096 against the SDR—a basket of world’s five currencies—compared to Rs. 16.643 to the US dollar in fiscal year 2017-18. The value of SDR is based on the basket of five currencies—US dollar, European Union Euro, Chinese Renminbi, Japanese Yan and British Pound.

The impact of huge depreciation against SDR massively impacted country’s finances as most of its financial liabilities like debt repayment are in SDR form. Simultaneously, the rupee SDR exchange losses badly hit the State Bank of Pakistan (SBP) consolidated profits in FY 2018. The central bank’s dropped by 26 percent to Rs. 1654.67 billion in the current fiscal year due to exchange losses following rupee depreciation compared to Rs.238.06 billion in the preceding year. The finance minister once said about revamping of FBR by inducting professional from the private sector which is yet to be done.

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