Without parliament’s approval for the tax amnesty bill, this year’s tax collection will sink to Rs2.194 trillion – Rs187 billion less than the target – as the economy has lost its resilience, tax officials have warned.
In a briefing to newly-appointed Minister of State for Finance Salim Mandviwalla, Federal Board of Revenue (FBR) officials admitted that matters have reached a point where tax collection cannot be improved without revisiting employed strategies.
“I am ashamed of this month’s collection results,” FBR chairman Ali Arshad Hakeem said. He called it a critical time for the country, and reiterated that things cannot be turned around without restructuring the machinery and adopting out-of-the-box solutions.
Rs651 billion have been collected in taxes from July 2012 to date – which is higher by Rs74 billion or only 12.8% over the corresponding period of the previous year – Senior Member FBR Inland Revenue Policy Asrar Raouf said. He recalled that at least 26.4% growth was required to achieve this year’s target of Rs2.381 trillion. “On current patterns, we can collect only Rs2.194 trillion and this has already been conveyed to the Finance Minister Dr Abdul Hafeez Shaikh [sic],” he added.
The FBR’s candid admission jeopardises the government’s stand on this fiscal year’s budget projections. For fiscal 2012-13, the government has assessed a 4.7% or Rs1.12 trillion budget deficit, which according to many experts is understated. By adding the expected revenue shortfall in the deficit, the figure will balloon to Rs1.3 trillion or 5.5% of the Gross Domestic Product (GDP).
Raouf said the government will table the tax amnesty bill in the next session of the parliament. He claimed that if the national assembly approves the bill, the move will help augment collection by Rs120 billion. He added that inflation was already in the single digits, while industrial growth has also been largely anaemic, adversely affecting collection efforts.
The proposed tax amnesty scheme will bring at least 3.1 million more persons in the tax net. It has offered tax evaders to legitimise their wealth by paying merely Rs40,000-70,000 upfront on Rs5 million worth of income or assets. Those who have more than Rs5 million in undeclared income or assets will have to pay 1-1.5% of the gross value of such assets in additional taxes, explained Raouf.
The FBR chairman said that if the scheme is successful, the tax-to-GDP ratio will increase to 13% from the current 9.1%. He said that total taxpayers in the country totalled a mere 868,000 last year, only 0.6% of Pakistan’s total population. This ratio is 4.7% in India and 80% in Canada, he complained.
Admitting massive slippages in the system, Hakeem said the effective sales tax rate is only 3.8%, compared to the 16% General Sales Tax rate. “Illegal input adjustments and bogus tax refunds are treated as legal income by the corporate sector,” he said. He claimed that if the authority manages to increase the effective sales tax rate by just 1% by plugging leakages, it will fetch the exchequer an additional Rs100 billion.
While pointing to the loopholes in the system, the chairman said only 43% registered companies file returns out of a total of 50,840, and just one-fourth of 150,281 Association of Persons file returns.
The FBR chairman added that there are 311,000 vehicles in the country with duplicate registration numbers, while another 120,000 have duplicated chassis numbers. He admitted the country did not employ effective border controls, and asked for additional manpower to monitor the borders.
Mandviwalla observed that some of his friends earn millions of rupees but do not pay taxes. He said the perception that tax evaders and honest taxpayers are treated equally in this country can only be changed by the FBR.
However, despite admitting the FBR’s failures, officials rounded off the briefing by demanding more perks and privileges for its employees. They also sought an increase in their share in annual tax collection by another 0.2% to 1%. Raouf also asked that an entire sector in Islamabad be allocated to housing FBR officials and employees as an incentive to “work more”.
Published in The Express Tribune, November 25th, 2012.
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