Accountancy firms refuse to oblige government

Move makes it unlikely FBR will collect Rs110b it needs to achieve its monthly target

ISLAMABAD: Four of the country’s major chartered accountancy firms have refused to oblige the government in securing advance income tax from their clients or assisting it in out-of-court settlements of tax disputes amid a steep shortfall in revenue collection.

Tax authorities, sources said, could not persuade A F Ferguson, Ernst & Young, KPMG and Deloitte Pakistan to help the Federal Board of Revenue (FBR) in this regard. Most of the companies in the country are clients of these four firms and the companies do pay heed to their advice.

The FBR needs to collect Rs110 billion in the next week to achieve its monthly target, which now seems highly impossible.



Earlier this week, a meeting was held between representatives of the FBR and these four firms in Karachi. Member, Operations Inland Revenue of FBR, Dr Mohammad Irshad led the FBR in meetings with these four firms, the Pakistan Banking Council and tax bar associations in an effort to achieve revenue targets.

The FBR is desperate to achieve its October revenue collection target of Rs260 billion after it faced a shortfall of Rs56 billion during the July-September quarter. After the dip in collection, a blame-game started, which ended only after Finance Minister Ishaq Dar intervened, the sources said. FBR’s field force, they said, was also de-motivated by infighting.

For the current fiscal year 2016-17, the parliament approved a Rs3.621 trillion tax collection target for the FBR, which now appears unachievable largely because of the bureau’s administrative and capacity issues.  Incidentally, the bureau achieved the last year’s target by imposing unprecedented indirect taxes, taking advances and withholding genuine tax refunds.

During the past three years, the government failed to achieve its annual targets of broadening the tax base. Only 1.1 million people filed income tax returns last year against more than 3.8 million registered with the FBR, demonstrating glaring incompetency.

“The achievement of economic targets is directly linked with the profitability of the banks and the oil and gas sector. If their profits are not growing how can they pay more taxes than the previous year?” said Shabbar Zaidi, a senior partner at A F Ferguson, the country’s largest chartered accountancy firm.



Zaidi said that he had advised the FBR to focus on sectors which were paying taxes below their potential. He said he would ask his clients to pay taxes only where there was a genuine demand.

The main agenda of the meeting between the big fours and the FBR was finding a mechanism to settle tax cases that are in litigation, said a senior partner of another chartered accountancy firm. He said that the firms made it clear to the FBR that they would not advise their clients to adopt Alternate Dispute Resolution Committee (ADRC) mechanism until the FBR accepted its decisions to be ‘binding’.

He said that there was no fun in wasting months in ADRC when at the end of the day FBR refused to implement its decisions. Currently, the ADRC recommendations are not binding on the FBR.

In the past, the FBR made aggressive tax assessments to press companies working in formal sectors to pay up extra tax to meet their targets. Interestingly, the FBR has gone into appeals in most cases. Currently, more than 26,000 cases are pending before Appellate Tribunals awaiting decisions. More than 16,000 tax cases are pending only before the Sindh High Court.

An FBR official said that as much as Rs316 billion was stuck up in litigations and the authorities concerned were trying to recover some of it during the next few months to achieve the targets.

Published in The Express Tribune, October 23^rd, 2016.