The FBR Ponzi scheme

Is the Federal Board of Revenue (FBR) the most cynical department of the government or just the most dangerously naive one? The shenanigans involving advance income taxes from the country’s largest banks appear to have reached a juncture where, far from being a simple accounting sleight of hand, they have actually started costing the taxpayer money. It was enough when the FBR tried to hoodwink parliament by declaring that it had achieved greater revenue collection than it really had. That it did so while having to pay an interest penalty for deliberately delayed refunds is simply unacceptable.

The FBR has a habit of not being able to make its collection numbers every year and has been turning to large taxpayers, mostly commercial banks, to pay advances on their taxes for the next fiscal year on the promise that the advances would be returned to them in the next fiscal year. In effect, this makes the collection of income taxes into something akin to a Ponzi scheme, where every year the government has to collect more advance tax at the end of the year to make up for the refunds given back to the banks at the beginning of the fiscal year. That such an exercise is ludicrous would make sense to anyone with only the most rudimentary understanding of arithmetic. But apparently, that is too much to ask of the FBR’s senior staff. We understand that the FBR’s job is not easy, especially in the absence of the political will to engage in a meaningful crackdown on tax evasion. But the least that the civil servants could do is not actively make the problem worse.

This little scheme of the FBR has managed to cost the taxpayers Rs12 billion in payments of interest to the four largest banks in the country. The FBR not only lost taxpayers’ money, but also never actually achieved its downward revised revenue collection targets. So why did it matter so much to it to engage in this scheme? It is an expensive error that has left the taxpayers with a large bill and no meaningful benefit. Heads should roll in Islamabad for this incompetence.

Published in The Express Tribune, February 20^th,  2015.

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