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.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ