Islamabad initiates action against 100,000 tax evaders to secure $5.3b loan. DESIGN: ANAM HALEEM
The terms of the bailout package agreed with the International Monetary Fund (IMF) may be “homegrown”, but the Fund has made it a strict prerequisite that Islamabad send out notices to identified tax evaders before it can wish to obtain the $5.3 billion promised under the new programme.
In the first phase, the Federal Board of Revenue (FBR) will send out notices to 10,000 top tax dodgers within this month: this clause has been written down in black and white in the deal reached with the IMF, officials revealed to The Express Tribune. In the second phase, notices will be sent to 15,000 more tax dodgers in August. According to the condition, a total of 100,000 tax evaders will receive notices this fiscal year.
The step is aimed at broadening the extremely narrow tax base of the country, which consists largely of salaried individuals. In a population of 180 million, income tax payers number less than 800,000, according to the FBR.
In return for bailing the Pakistani economy out, the IMF wants Pakistan to increase its tax-to-GDP ratio from its historical low of 8.9%, to 9.5% in the current fiscal year.
If Pakistan fails to do so, under any compulsion, it will cost the country the $5.3 billion bailout package, sources said.
According to the deal, Pakistan is bound to implement five conditions: notifying and netting evaders as part of income tax measures is one of the things it has to do if it wishes for the IMF’s Executive Board to clear the loan. The Executive Board is scheduled to meet in the first week of September.
Other conditions include increasing electricity tariffs, making borrowing expensive by increasing interest rates, putting restraints on provincial expenditures and seeking approval for them from the Council of Common Interests.
When the deal was announced, Finance Minister Ishaq Dar had said the package was “homegrown” and in line with the PML-N’s manifesto.
FBR back in limelight
In 2010, the PPP government claimed it had identified 700,000 tax dodgers with the help of the National Database and Registration Authority (NADRA). Data on these individuals had been mined by tracing the details of their expenditures, international travelling, bank accounts, ownership of vehicles and armed licenses.
The number of identified evaders swelled to over three million by 2012, but the FBR failed to catch even one big fish. Observers said it lacked both the capacity and the political will to crackdown against these heavyweight thieves, many of whom are the country’s top businessmen and celebrities.
This time, the FBR has the additional authority to access bank accounts of suspects. The power to do so was given to it in the latest federal budget.
While talking to The Express Tribune, FBR Chairman Tariq Bajwa confirmed that the FBR will indeed send out notices to 100,000 tax dodgers, 10% of whom will receive the notices in July. He said Pakistan is committed to its agreement with the IMF, and the FBR held information regarding all these individuals and it was only a matter of fine-tuning the details.
He said all loopholes which may be exploited by these evaders will be closed, and referred to the fact that the federal government has made it mandatory for individuals to pay provincial agriculture income taxes before claiming any exemptions when filing income tax returns with the FBR.
Other sources said that the FBR will implement the Computerized Risk-based Evaluation of Sales Tax (CREST) software to tighten the sales tax net. The system checks information regarding monthly returns, import and export data and cross-matches it for every registered person.
CREST was a brainchild of former FBR chairman Ali Arshad Hakeem, who had also been instrumental in collecting the data on tax thieves. In only the pilot phase of CREST’s implementation, the FBR had unearthed illegal refunds worth Rs4 billion from the textile industry. However, after Hakeem was ousted, the FBR had abandoned system.
Published in The Express Tribune, July 6th, 2013.
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CREST was a brainchild of former FBR chairman Ali Arshad Hakeem, who had also been instrumental in collecting the data on tax thieves. In only the pilot phase of CREST’s implementation, the FBR had unearthed illegal refunds worth Rs4 billion from the textile industry. However, after Hakeem was ousted, the FBR had abandoned system. What a shame for Pakistan' s government that they have ousted the person like Mr. Hakeem who was working in national interest and is looking for a job abroad after thrown out of FBR. We need to get his services back so we can get the tax evaders and broader the tax net. I hope we will get his services and present government will re employ him in the better interest of Pakistan.
Tax Base - End all exemptions. Income from any source, especially agriculture, if it is more than Rs 400,000, should be taxed. That is fair and implementable. How about that? Why does not our Govt do so to broaden the tax-base and increase its revenues?
It is still just issuing the notices, complying with them is another story.
It's embarrassing enough for PMLN that the IMF had to impose this restriction rather than the PMLN taking an initiative to broaden the tax base. I see the PMLN simply not being able to do so because they came into power due to the patronage of the same tax evaders. . You can't bite the hand that feeds you. This is Ishaq Dar's imaginary 'home grown' IMF package, if ever there was such a thing.
It's a shame that it takes the IMF to force you to collect taxes from people who have been cheating the system - reminds me of the time when the UN was forced to investigate Bhutto assassination because your govt sat on it's hands.
The tax-evader figures are appalling. FBR should be depoliticized and made an independent body if we need to net these leeches.
How can Ishaq redcuce the budget deficit/reducing expenditures as per IMF demands while at the same time constructing motorways and a '200km long tunnel' is beyong comprehension...
The previous economic mangers messed up the finances of the country an dthey should be held responsible. Why does Pakistan not access the overseas un-taxed assets of it's citizens?.This is the easiest way to get over $10 billion
As per wsj: Pakistan has been a regular client of the IMF for more than two decades. It has entered nearly a dozen loan programs since 1988, but only successfully completed a handful. The country currently owes the IMF just over $6.2 billion.Mr. Franks acknowledged that Pakistan had failed to comply with the terms of previous programs but said that wasn't a reason to "turn a country down." The $5.3 billion loan is to be paid out over a three-year period, with payments frontloaded to allow Pakistan to meets its obligations from previous IMF programs. It is supposed to be repaid over 10 years after a four-year grace period. Mr. Franks described the repayment terms as "longer than conventional" to allow Pakistan's ailing economy breathing room. The country's finances are in a dire state. The Pakistani rupee has lost almost 40% of its value against the dollar in the last five years, and the fiscal deficit reached 9% of gross domestic product compared with 5.3% two years ago. Under the new program Pakistan has committed to reducing the deficit by 2 percentage points per year. The IMF estimates the central bank has spent an average of $250 million a month over the past nine months to prop up the rupee.
Since this loan is front loader means most of the money will be used to cover the previous payments. Net gain to the treasury from the loan will be a very small amount.