The tax lacunae

The tax machinery, whose laxity is an undeniable truth, has once again failed to meet the revenue collection target for the first half of ongoing fiscal year. The FBR has missed the target by Rs330 billion, despite taking a leap on the last day of the outgoing calendar year by netting a staggering Rs391 billion. It is ironic to note that the original shortfall was around Rs545 billion, as it pooled Rs6.16 trillion during the July-December period. That has led to speculations of a mini-budget specifically targeting business in solar panels, mobile phones and bank account holders. In other words, commoners and the enterprising middle class will have to pay for the inefficiency of babus.

It is, moreover, distressing to note that the government, rather than reprimanding the tax sleuths, has assured the IMF that it will, somehow, collect Rs200 billion in additional indirect taxation to make up for the slippages. The brunt again will fall on the common man. The back-up measure reportedly includes increasing the withholding tax on cash withdrawals to 1.5% — an increase of almost 100%.

The sordid collection equation can be judged from the fact that the Fund had slashed Rs214 billion revenue collection to adjust the impact of the depreciation in growth and the devastating floods. Yet the FBR was found ducking. It paid 47% less refunds in December compared to a year ago, accounting for a monthly shortfall of Rs20 billion. Last but not least, an attempt to scrutinise the loss-laden exporters on their tax returns on suspicion of under-invoicing has not gone well with the business community.

The way forward is to overhaul the tax bureau and carry out reforms. The Prime Minister's assurance to address vulnerabilities identified by the IMF in its Governance and Corruption report is a promising move. The proposed 142-point agenda for institutional building and rule of law must see the light of the day to avoid a repeat of Rs5.3 trillion embezzlement, as pointed out by the Fund against recoveries made by NAB. Digitising the economy and holding tax collectors to account are indispensable measures.