Tax hound: FBR to initiate hunt for identified tax evaders

Govt also withdraws tax facility and slaps sales tax on manufacturing.

ISLAMABAD:

The government has in due course decided to go after the top 300,000 tax evaders of the country in the hope to get them to cough up minimum Rs90 billion after it failed to push through with its amnesty scheme.

A presidential order is expected any time this month to allow the Federal Board of Revenue (FBR) to suspend Computerised National Identity Cards (CNIC) besides allowing the authorities to initiate criminal proceedings against these people, said FBR Chairman Ali Arshad Hakeem on Saturday.

In yet another significant move, the government also withdrew the zero-tax facility to the textile industry and slapped 2% sale tax on exports and domestic sales of textile products alike – a move expected to generate at least Rs25 billion annually. The move may partly offset declining revenues.

The Federal Minister for Finance Saleem Mandviwala approved two separate summaries to give effect to these decisions, said Hakeem.

Although the decisions were long overdue, their timing gives rise to concerns whether the government can sustain pressures from the influential, as general elections are just around the corner.

The government had tabled the amnesty scheme in the Parliament aimed at providing a final lifeline to identified tax evaders. However, due to opposition by mainstream parties and objection raised by the International Monetary Fund (IMF), the scheme was never brought on the agenda for voting.



Hakeem said as part of the campaign to broaden the tax base, the FBR will send notices next month to the 300,000 top tax evaders out of the three million identified. “Our conservative estimates show that they owe Rs90 billion to the government,” he added.

Among the population of 180 million there were only 750,000 income taxpayers, as concessions and exemptions granted over the years had made the FBR an irrelevant body – a fact the chairman candidly admitted.

“In the beginning it was tax evasion, and then became rampant corruption and eventually mafias took over, making the FBR irrelevant in most sectors,” confessed Hakeem.

He said the federal government had also approved giving 5% of the actual collection from these people to the FBR employees as reward.

Tax on Textiles

In a first step towards bringing an end to distortions created in the system for the benefit of affluent people, the government removed the zero-rating facility to textile industry. On the other hand, it slapped 2% tax on all types of manufacturing irrespective of the product being exported or consumed in the domestic market.

Hakeem said the government will issue a notification to implement this decision by early next week.

To evade taxes, the textile millers were declaring their manufacturing as exports and were also making fake invoices. Hakeem said the FBR had started arresting people involved in claiming fake refunds.

The chairman said the tax system can no longer be run with holes and the government has to stand up against interest groups. He said the FBR has also sought a list of top 100 smugglers of the country.

Country Director of the World Bank Rachid Benmessaoued also said Pakistan’s tax system was mired by exemptions and zero ratings. He said tax reforms were critical for creating fiscal space but the vested groups were in favour of the status quo.

Hakeem also highlighted FBR’s inefficiencies that led to the complete collapse of the tax system. He said over the years the income tax and sales tax departments failed to perform their due role. “Tax paid by one tobacco company is more than the taxes paid by the salaried class of the country”, said Hakeem.

Further, 100 companies contribute 82% to the total sales tax collection and 25% of the sales tax comes from petroleum products at various stages – the numbers show how narrow and unfair the country’s tax system is.

Published in The Express Tribune, February 24^th, 2013.

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