The federal government has warned tax officials against ‘greasing their palms’ and directed them to clear sales tax refunds of up to Rs1 million within one month without taking bribes, highlighting the deep-rooted corruption in the tax machinery.
The warning was given by Finance Minister Ishaq Dar, while addressing the Chief Commissioners’ conference in the Federal Board of Revenue’s (FBR) headquarters. The conference had been convened to review tax collection and efforts required to achieve this year’s revised target of Rs2.345 trillion.
Dar said the government was receiving complaints in large numbers against the FBR’s inability to clear refunds of taxpayers. He said that out of the 36,000 outstanding refund cases, as many as 26,000 were small cases involving amounts of up to Rs1 million.
He directed the FBR to clear sales tax refunds of up to Rs500,000 within two weeks and refunds from Rs500,000 to Rs1 million by mid April. The remaining 8,000 to 9,000 people will get refunds depending upon the availability of funds, Dar added.
“But make sure no one greases his palm”, Dar cautioned FBR Chairman Tariq Bajwa.
The finance minister repeated his warning at least three times, underscoring the presence of corruption in the tax machinery.
Dar acknowledged that the practice of withholding refunds was increasing the cost of doing business in the country, creating problems for small and medium-sized businesses.
As a norm, the FBR has been withholding tax refunds, using the money to show growth in revenues. According to unconfirmed estimates, the FBR has withheld tax refunds in the range of Rs80 billion to Rs100 billion. The FBR officials did not disclose the exact amount of refunds but said “it was substantial”.
Dar lamented the fact that the country’s tax-to-GDP ratio (9%) is one of the lowest in the world. He said the government wanted to increase the ratio by at least 1% every year – a plan that the analysts believe will not materialise at least in the current year.
As against the original tax target of Rs2.475 trillion, the FBR had revised its target downwards to Rs2.345 trillion after growth in collection averaged at 17.7% during the last eight months, against the required rate of 28%. From July through February, the FBR collected Rs1.35 trillion in taxes.
The finance minister hinted that the FBR may fall well below the Rs2.475 trillion collection target in June, but stated that he was content with the FBR’s performance, blaming the previous government for the shortfall in tax collection due to a reduced tax base.
While the appreciating rupee has given a sigh of relief to the government and consumers, the FBR appeared perturbed. During the conference, the FBR officials also deliberated the negative impact of a strengthening rupee against the US dollar on its revenue collection efforts. The rupee is traded around Rs98 to a dollar, coming down from the peak of Rs111. This will dent the FBR’s tax collection on account of customs duties on imports and withholding taxes on exports.
In a separate event, the FBR on Thursday signed memorandum of understandings (MoU) with revenue authorities of Punjab and Sindh regarding adjustment of sales tax on services against sales tax on supplied goods. This has settled a three-year-old dispute that created immense problems for the taxpayers.
The MOUs were signed by Bajwa and Tashfeen Khalid Niaz, Sindh Revenue Board chairman, and Iftikhar Qutab, Punjab Revenue Authority chairman.
Published in The Express Tribune, March 14th, 2014.
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