For 10 years, FBR fails to analyse data of telecom firms

DG says FBR has now overcome constraints, improved its system

ISLAMABAD: In a shocking revelation, the Federal Board of Revenue (FBR) till recently did not have the capacity to analyse transaction-wise data of withholding taxes collected by telecommunication companies and was blindly trusting their numbers.

The disclosure, made in a meeting of the Senate Standing Committee on Finance, once again highlighted the capacity constraints at the FBR that was leading to overburdening of existing taxpayers to meet annual targets.

It also put a question mark over the FBR’s strategy under which it goes after small amounts but is content with letting billions of rupees slip from its hands.



“The FBR was not receiving 100% transaction data from the telecommunication companies due to capacity constraints,” admitted the director general of withholding taxes before the Senate panel.

He pointed out that the FBR improved its systems only after the standing committee took notice of the situation. The FBR has now developed an online interface with the telecommunication companies, he said.

Surprised over the FBR’s inability to perform its task efficiently, the standing committee suggested that the government should outsource audit functions to the private sector.

Headed by Senator Saleem Mandviwalla of the Pakistan Peoples Party, the committee had called the FBR for an update on the audit of telecommunication companies. Under the income tax ordinance, the telecom operators deduct upfront withholding taxes on pre-paid mobile cards and other transactions.

For the past over 10 years, the FBR did not have the capacity to analyse the data, commented Shakil Kasana, Commissioner of the telecommunication sector. On an average, four mobile operators were collecting Rs4 billion per month in withholding taxes from the mobile users, he said.

The capacity constraints also highlight that billions of rupees in additional taxes either cannot be fully collected from the taxpayers or do not reach state coffers and end up in the hands of withholding agents.

A recent report of the World Bank has put the value of tax evasion in Pakistan at around Rs3.4 trillion, equal to last fiscal year’s total tax collection. In the previous fiscal year, the FBR’s tax-to-GDP ratio marginally slipped to 10.6%.

“There is a clear contradiction in FBR’s policy to deal with various categories of taxpayers,” said Senator Saud Majeed of the Pakistan Muslim League-Nawaz.

He said the FBR let billions of rupees worth of revenues slip from its hands by not developing systems, but it went after small taxpayers at  full throttle.



Telenor Pakistan, which has 36% market share, generated Rs98.1 million in withholding taxes in July and the FBR did not have the systems to monitor such big data in the past, said Tanveer Khawaja, FBR’s Member Inland Revenue Operations.

He said the telecommunication companies’ systems were very sophisticated. The FBR had so far started the audit of Telenor Pakistan and would complete its work in four months, he said, adding without improving IT systems, the FBR could not perfectly perform the audit functions.

Kasana said in the past the FBR used to perform system audit of telecommunication companies and demanded Rs2.6 billion from CM Pak Limited. However, the company has contested the tax demand.

Telecommunication is not the only sector where the FBR has closed its eyes. It is also not ready to go after cigarette manufacturers who have evaded over Rs60 billion in taxes over the past one year alone.

Published in The Express Tribune, October 19^th, 2017.

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