The real story behind annual growth of 20% in revenue collection of Federal Board of Revenue (FBR) from 2013 to 2016 remains untold. It is a sordid story of cheat and deceit. The available facts reveal that behind the "extraordinary" (claimed and acclaimed) revenue growth lies not only blocking of refunds of billions of rupees and advances taken from big corporate taxpayers but also a substantial increase in the number of withholding tax provisions and their rates, and exorbitant sales tax on petroleum products. The mighty ex-Finance Minister (still minister-on-leave?), Ishaq Dar, presently facing trial before the Accountability Court, not only hiding these facts, but has been brazenly and blatantly hoodwinking members of the Parliament, international lenders/donors and the public at large.
FBR has not yet published the Year Book for fiscal year 2016-17 even after a lapse of seven months. The reasons are best known to FBR bosses but it is obvious that they want to conceal the incompetence and inefficiency of their institution, which is sleazed with corruption and has become infamous for its highhandedness. Fiscal year 2016-17 was disastrous for FBR. The Chairman FBR on August 2, 2017 admitted before Senate Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization that in 2016-17 revenue growth was only 8%. The target fixed was Rs 3621 billion, which was reduced to Rs 3521 billion whereas actual collection was Rs 3362 billion. The target for the current years is Rs 4013 billion (increase of 19% over last year) and in the first six months, FBR has reportedly collected Rs 1722 billion showing increase of 17.5% as compared to last year.
No details are available on FBR's website about growth of 17.5%. Media reports suggest that this increase is not due to efforts of officers but courtesy imposition of regulatory duty on hundreds of items, exorbitant sales tax on petroleum products, enhanced withholding tax rates, blocking of refunds and taking advances of billions of rupees. In the absence of head-wise bifurcation of collection from July 2017 to December 2017, no comments can be made. Details about fiscal year 2016-17 have not been published yet and therefore a month-wise comparison is not possible. FBR should publish the Year Book for 2016-17 immediately and place on its website head-wise details of collection for the current fiscal year with a month-wise comparison with earlier year.
It is a fact that Inland Revenue Service (IRS) decided less than 10% of pending audit cases in 2016-17. FBR's collection under the head of income tax by creating demand was only 8% of total collection, rest came from withholding provisions or advance tax or tax deposited with returns. This exposes the efficacy of FBR that has miserably failed to compel non-filers to file tax returns.
Since the last many years, the main reliance of FBR is on withholding taxes (which is about 70% of total income tax collection) and on excessive sales tax on petroleum products (nearly 50% collection came from this source alone). FBR has been hiding facts about its failure to enforce filing of returns and not admitting the real quantum of refunds payable. Ultimately, Ishaq Dar confessed before the National Assembly's Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatisation on November 26, 2015 that refunds of Rs 200 billion were pending.
The public has fundamental right under Article 19A of the Constitution to get comprehensive information and details about collection of taxes by FBR and refunds pending and issued. FBR promised to do so in 2016 before a committee constituted by Federal Tax Ombudsman (FTO) on the complaint of Pakistan Apparel Forum for non-payment of refunds but has not fulfilled it today. FTO has also failed to take note of this lapse.
Historical record shows that over the period of time FBR has been keeping the people in dark about its actual contribution in collection of taxes. The burden is mainly shifted to the withholding tax agents. Although FBR has been taking credit of "extraordinary" performance, the fact remains that reason for increase is due to enhanced rates of withholding taxes, tax, advance under section 147 of the Income Tax Ordinance, 2001 and excessive indirect taxes. The performance of IRS through its own efforts that is by way of audit of declarations or by bringing new taxpayers in the net or unearthing, under-reporting or non-reporting using data and employing modern information technology tools is highly disappointing. Figures from July 2017 to September 2017 testify to it: due to increase in withholding tax rates, growth under this head as compared to last year is 18%. Increase in some items is phenomenal: dividend 54%, contracts 26%, rent 29%, registration of new cars 46%, on domestic electricity bill 57% and 182% on domestic air tickets-just to mention a few.
The above shows that increase in income tax collection is due to the fact that millions of Pakistanis by virtue of over 70 types of withholding taxes, both adjustable and non-adjustable, are paying advance income tax. There are 90 million unique mobile users alone who pay adjustable advance income tax. FBR is hooked on easy collection. It is thus not interested to force non-filers to file tax returns. According to a press report, FBR received only 608,587 income tax returns till November 1, 2017. Will the full year filing reach the level of 1.2 million in 2016? FBR has no definitive answer. It is pertinent to mention that in 2011 this number was 1,443,414. In 2006-07, the figure was 2.1 million as mentioned by Jorge Martinez-Vazquez and Musharraf Rasool Cyan in their book, 'The Role of Taxation in Pakistan's Revival' [Page 676, Figure 36]. How tragic that FBR has lost one million return-filers since 2006-07 and yet there are tall claims of "wonderful" performance.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)