The 5.5 trillion question

The budget number that has aroused most excitement, even disbelief, is the tax target of Rs5,555 billion for the FBR. The disbelievers say it has never happened, shall not happen. If you do nothing, the thumb rule is that the yield will increase as much as the increase in nominal GDP, which in the present case is around 15 per cent. Additional tax measures have rarely added more than 5-6 per cent. This addition is now being pitched as high as 20 per cent. Although the projected collection, if it materialises, will still be far from bridging the gap between the collection and the potential estimated in a very recent study by the World Bank, this newspaper’s correspondent told the Finance Adviser at his post-budget encounter with the media that the full implementation of measures announced will still leave a gap of nearly Rs275 billion.

His estimate is as good as anyone else’s, and certainly better than the FBR as it exists. The point, however, is that for the first time a big target has been fixed. More important, it is owned by the finance leadership and backed up by the highest political level. The freezing of the defence budget at the current year’s level signals support of the establishment for this national endeavour. Thus it was not for nothing that the mild-mannered Hafeez Shaikh was challenging the rich and the powerful to pay up or shut up. The business of paying a pittance on domestic sales of zero-rated exports, the filer-non-filer nonsense, the transfer pricing chains and such likes have to go. (One would have liked the agricultural-nonagricultural distinction in defining income also to go). Calling it the IMF target will not deter him. “The stakes for the country are so high that it cannot be business as usual.” This level of seriousness was matched by the FBR chairman’s claim to have done enough homework to achieve the target.

There is no reason not to take these statements at face value. Whether the mover and shaker in the system, the revenuecracy, has been bought in is another matter. The talk about changing systems and using technology to limit interpersonal contact started and ended with the disaster called the Tax Administration Reform Project of the World Bank. It is a fit case for investigation by the Commission of Inquiry mooted by the Prime Minister before the next disaster being hinted at becomes formal. The new FBR chairman may have done his homework, but his organisation has a design defect. Without its transformation, the political will, the proverbial same page and the chairman’s homework will all come to naught. The transition should have preceded the budget. A tax authority, with operational as well as financial autonomy, headed by a competitively selected chief executive with a fixed five-year, non-renewable tenure is the need of the hour. All other staff should also consist of professionals to be paid market salaries. The existing revenue services should be pensioned off, with those able to compete for entry into the new agency allowed to do so. Fresh recruitment in income tax and the customs groups of the CSS should stop and the groups should be abolished. The new agency will have its own professional mechanisms for recruitment. Ideally, there should be only one tax authority for federal, provincial and local taxes. Its natural home would be the Council of Common Interests, directly disbursing the NFC and PFC shares. A start can still be made. But it requires greater political will than the 5.5 trillion target.

Published in The Express Tribune, June 14^th, 2019.

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