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.
COMMENTS (21)
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@Hasa: I agree 100 %.....
@Hasa: and you missed one more thing in the morality paragraph. and that is we support amnesty schemes for those who have been steeling the nation (tax evaders). and budget deficit is the symptom not the cause. The right question is what will be the right approach to raise tax revenue? and i have already answered this question in my first two posts. Read them again (carefully) instead of repeating yourself.
@ishrat salim:
" is it fair for other honest tax-payers ? who will be paying much higher amount in tax for the same declared amount…?"
Is it fair for honest salaried tax payers who have tax deducted from their remuneration to pay relatively high tax but, for agricultural property owners who earn a thousand times more than a salaried person to pay little or, no tax?
@Ahmed Jamal Pirzada:
Well, time won't /can't judge, as I'm certain that these registration schemes will NEVER pass parliament. As I'd stated before, the entire 'amnesty' exercise is an effort by the FBR chief to wriggle out of the revenue deficit that the FBR faces. When these schemes are ditched by parliament, the FBR chief can blame it (parliament) for tax collection shortfalls, as, his schemes were not allowed to be implemented.
As for morality; it's a great concept, however, not one nation on this planet practices morality. Morality implies telling the truth and being honest, the amount of lies and swindles that occur in the Land of the Pure is unprecedented. WE go to mosques, keep long beards, fast, then tell lies. Remember Islam forbids interest, so, we call it profit ( very moral???) WE take loans from the IMF/ World Bank then pay interest on borrowings ; very moral ?? We treat our minorities shamefully, Islam states that all people are equal , so, where's morality? The option of not adopting the Registration schemes will be to continue with past FBR methodology, and an increasing budget deficit, therefore more inflation. Like such a scenario?
@Hasa: you are simply repeating yourself. i fail to see where you have explained the points i raised in my post. and secondly, 'morals' and 'fairness' is not a matter of 'Ha Ha'. It is what keeps your society together. There are critical levels in both. And you cant just get away by saying that there are more of them in some countries and less in other. Anyways, you stick to supporting another amnesty. Time will judge who is right and who is wrong.
@Hasa:
If you read the full details of the scheme, it says that " declare amount & pay certain amount as per slab against declared amount, but can retain declared amount in outside account "...is this fair enough for the Country who need money for circulation inside the country ?
is it fair for other honest tax-payers ? who will be paying much higher amount in tax for the same declared amount...?@Ahmed Jamal Pirzada:
You referring to morality & fairness in Pakistan ? Ha ! Ha !!
Please understand that there is no such thing as fairness anywhere on this planet. Some societies are more fair than others, that is all. Even a country as supposedly fair as the USA is utterly corrupt morally; consider their attitude towards Palestinians.
Returning to topic, I do agree that tax evaders should be penalized & their assets seized, however, they should be given one last chance to come clean; as this will greatly reduce notices , litigation and prolonged court battles.
The proposed Tax Registration schemes, if they ever become law ( which I very much doubt will happen) are really a method of enticing people into our tax net, which they will then not be able to escape as NADRA will have all their data.
As I've said in other posts, the entire FBR amnesty saga is designed to provide an excuse for it's shortfall in revenue. The FBR is going through the Parliament ritual knowing full well that the schemes will not be approved.
@Haseeb Khan:
First , I definitely don't work for either the FBR, or, NADRA.
A double tax arrangement between two countries is designed to avoid an individual from being taxed twice, separately, by each country. The FBR sending notices to multiple countries asking them for Pakistani accounts is impractical as there will be several hundred thousand inquiries, also, many accounts will be in the names of companies registered in such foreign nations, not in the name of a Pakistani individual. The procedure is a Mission Impossible..
However, I do believe that the entire amnesty scheme episode by the FBR is a farce. If the FBR had been serious , it would have introduced the schemes via a presidential ordinance. Parliament can reject such schemes, there can also be supreme Court objections. Considering the short government term left, it appears next to impossible that these schemes will ever become law. If the schemes don't become law, then, the FBR will have a ready excuse for not meeting it's revenue shortfall; such an excuse is the real reason for the FBR in formulating it's schemes.
@meekal a ahmed: If, as you say; these people are rich & powerful, then , sending notices to them for bringing them into the tax net will fail if conventional processes are applied. Wouldn't it be more effective to try & coax these people into our tax system by offering inducements such as Registration Schemes?
It is because sending notices & resultant litigation will result in long drawn out processes that Registration Schemes provide a swift alternative for expanding the tax net & are therefore preferable.
Frankly, I believe that the entire Registration Scheme story is pure eyewash, the effective way of implementing the schemes would have been via a presidential ordinance. Remember that parliament can reject the schemes, there could also be Supreme Court objections. Considering the short time that the present government has, it is most unlikely that the Schemes will become law, if the schemes are not implemented the FBR Chairman will have a ready excuse for the revenue shortfall. The rejection of these schemes is deliberately intended for explaining FBR's revenue shortfall
All these people are very rich, powerful and connected. I don't think anyone can touch them. The moment they are sent a notice, they will hire the best lawyers money can buy and that will be the end of this experiment, full of sound and fury signifying nothing.
@Hasa: its a simple moral question. we are trying to induce those who do not pay their taxes by inducing the other group towards not paying their taxes. If NADRA does not have the record of their foreign assets, then what guarantee there is that those who do not declare their assets will be punished? Instead, given ur line of argument, it only shows that we have allowed people to legitimize their wealth (as much as they want) with no consequences whatsoever. Anyways i dont know if NADRA has the evidence or not. Because as per the FBR cheif's earlier statement, he does have the knowledge of people's assets and consumption patterns. Most importantly, there are two signals which any such amnesty scheme sends out: Firstly, it tells the tax evaders to keep doing what they are doing as another amnesty will most likely follow; and, secondly, it tells the tax payers that they are the idiots who are paying for the services which the corrupt elite is enjoying. The end result is that even those who pay taxes are discouraged and the number of tax payers fall further. the solution is the start bringing the tax evaders to account. Arrest them, ban them, cease their assets or any other measure which is necessary. That is send the right signal and will encourage a feeling of fairness in the society. Without fairness, our social capital will erode and we will die our own death.
@Hasa: Pakistan has over 70 avoidance of Double Taxation Treaties with foreign governments. FBR can request information from these countries.There is specific clause in these treaties that allows seeking information. FBR is just lazy and dysfunctional.By the way what is FBR doing about non-duty paid cars?FBR has the information?. @Hasa: can you give me the name of FBR Member IR South?. Well since July there is none--tells you the story. @Hasa :hand over heart you work for FBR/NADRA
Any amnesty scheme is bound to fail. someone needs to put an end to it and start bringing the tax evaders to task. The problem is not if "Mr. Hakeem's" scheme is better than others or not. but the point is that Mr. Hakeem (i do not question is sincerity) has joined the ranks of those who introduced their own such schemes. By the time Mr. Hakeem implements this, he will be replaced and another will come with his own amnesty scheme (to fail again). And because everyone knows this, all the evaders will take this as a pinch of salt. Those who will take it seriously, will do so to legitimize their past unlawful income only to cheat again in the future. Anyways i fail to understand why would anyone take this scheme. Fair enough 40-70,000 is peanuts and theoretically all the robbers (tax evaders) should rush towards it. But to any businessman there is a greater cost to it. Which is full tax on his next years income/profits. Any potentially successful scheme needs to start with the punishments first and then declaration of hidden wealth but not the other way round (what this scheme proposes).
Fight corruption, don't fund them with your tax.
@Haseeb Khan:
No , I don't, however, I specialize in computers & data bases, so am aware of what the FBR Chief is trying to do.
Am really amazed at the number of people who are trying to reject the proposed Registration Schemes, because improperly thought out schemes failed in the past; the evader tracking methods proposed in the current schemes have never been used before, so the mechanisms of the new schemes are completely different ( from those in the past).
Can you, or, anyone else, tell me how a tax evader having foreign assets ( which NADRA can't record) can be induced to declare these to the FBR without an inducement, or, amnesty?
@meekal a ahmed:
Past amnesty schemes failed because no efforts were made to link tax evaders bank accounts, foreign trips, cars & houses via their CNICs; that is not the position now, as the present FBR chief can trace evaders assets from relevant CNICs,
The registration schemes that Mr. Hakeem has suggested are completely different to all past "amnesty" schemes.
Can you please tell me how a potential tax payer having foreign assets ( which NADRA can't record) is to be brought into Pakistan's tax net if that individual is not offered an "amnesty" as an inducement?
@Hasa--do you work for NADRA or FBR.I see bias in your coments
Mr. Hakeem is the ONLY FBR chief who has made a genuine effort to expand Pakistan's tax base by incorporating NADRA data so that it is now possible to link bank accounts, cars, houses, foreign trips and expenses to individuals / families. Had this been done earlier , Pakistan's tax payers would have increased dramatically.
Can anyone please tell me how tax evaders will declare foreign assets without enticing them via an amnesty scheme?
It is very easy to say that Mr. Hakeem should resign, but, do remember that he has inherited a thoroughly corrupt and inefficient organization, had it been better, there would have been fewer tax evaders and less bribes would have gone to corrupt FBR officials who now oppose Mr. Hakeem. It takes novel ideas and time to improve a system as corrupt as the FBR, Mr. Hakeem must be allowed to implement his strategies.
Do remember that for the past 65 years no tax chief has tried to identify tax evaders via their assets or expenditure, that is why Pakistan's tax base is so narrow, Mr. Hakeem is trying to change this, I believe that he will be successful.
Although the reasons vary year-to-year, the FBR has been a chronic under-performer. Why should it come as a surprise that they will miss the tax target in FY13?
Drastic changes in the tax regime need to be undertaken.Ask any fiscal economist in Pakistan. They will tell you what needs to be done.
The admission that the effective yield of the sales tax is 3.8% (compared to a nominal yield of 16%) is simply shocking. I am sure the same applies to other taxes as well.
Another amnesty scheme is an insult to those who DO pay their tax.Furthermore, ALL previous amnesty schemes in Pakistan have failed spectacularly.
FBR has just conceded that their record shows a disappearance of 600,000 tax-payers out of 1.14 million tax-payers since 2011 ( height of incompetency etc; ), hence they are unable to achieve their target which was based on 1.14 million tax-payers,therefore, their only short-term remedial is to legalize blackmoney via tax amnesty scheme, where one pays Rs 75,000 & whitens looted & illegal money....the best part of this scheme....declare it, pay the tax on the declared amount but can keep it in overseas account.....officially declaring Pakistan as tax haven....this is one single achievement of this govt....
First Mr Hakeem must resign. History is repeating itself regarding collection of taxes. Mr Hakeem should let somebody else come forward to do this job right.