Everybody knows that collection shown by FBR contains blocked refunds of billons, advances from government-owned corporations and amounts extorted, though not yet due. The sordid story of over-reporting of collection and overstating targets will continue till the time action is not taken directly by the Supreme Court as even the present financial team under Finance Minister Asad Umar has not issued the long outstanding refunds. No action was taken either by the Public Accounts Committee or Standing Committees of Parliament even after extorting confession from FBR bosses of wrongdoings. The young State Minister for Revenue, Hammad Azhar, has also shown no inclination to take any punitive action against corrupt elements in FBR despite leads given in 'PTI and tax reforms', Business Recorder, August 17, 2018). On the contrary, under his control, obnoxious SRO 1320(I)/2018 was issued on November 2, 2018 to deny even bona fide refunds through discretionary powers. He should have rather taken action against the "refund mafia" allegedly engaged in selling flying and fake invoices. This is rampantly in use due to connivance of corrupt officials and unscrupulous tax advisers/taxpayers.
The main reliance of FBR since 1991-92 has been on indirect taxes, even under the Income Tax Ordinance, 2001 that contains over 65 withholding tax provisions, many provisions relate to presumptive taxation and minimum taxation that in reality are pass through items-indirect taxes in substance. According to details given in FBR's Year Book 2017-18, out of total direct tax collection was of Rs 1536.6 billion, income tax was of Rs 1528.5 billion. The website of State Bank of Pakistan (see Table) does not give bifurcation of amount of Rs 1,536,638,000,000 collected as direct tax. The same is the position in FBR's Year Book 2017-18 ['Of taxpayers and non-filers', The News, November 4, 2018 and 'Reluctant return filers', Business Recorder, November 2, 2018] that does not mention what was the nature of direct tax of Rs 8.1 billion, other than income tax of Rs 1528.5 billion collected for 2017-18.
The bifurcation of income tax collected during 2017-18 as FBR's Year Book 2017-18 is: Rs 1047 billion was from withholding taxes (68.5%), Rs 335.79 billion came as advance tax (21.9%), Rs 41.64 billion with returns (2.7%) and Rs 1.31 billion under 'Tax Arrears Settlement Incentive Scheme (TASIS) 2008' (.08%). FBR's own efforts (collection on demand) yielded only Rs 102.82 billion (6.7%)-from arrears Rs 17.69 billion (1.2%) and from current demand Rs 85.13 billion (5.6%). It confirms negligible share on the part of FBR to tap the actual tax potential as it would have been hurtful to the rich, majority of which are non-filers, despite having substantial undeclared, untaxed wealth and the audacity of ruling this country as a matter of right. They are ready to pay additional tax at source as non-filers but are not inclined to file tax returns.
According to document available on the website of Ministry of Finance ('Pakistan: Summary of Consolidated Federal and Provincial Revenue 2017-18'), the total collection under direct tax during fiscal year 2017-18 was of Rs 1,536,636,000,000 whereas on the website of State Bank it is Rs 1,536,638,000,000-such discrepancies become more conspicuous when there is no mention of what was the nature of collection of direct tax other than income tax. If it included Worker's Welfare Fund as well, as 'Annual Budget Statement 2017-18' shows, then it was violation of law as Supreme Court has already held in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)] that it is not "tax". If it included Capital Value Tax (CVT), it can no longer be levied on immovable property by the National Assembly as after 18th Constitutional Amendment, it is right of the provinces under Item No. 50 of the Federal Legislative List, Fourth Schedule to the Constitution of Pakistan, which says: "Taxes on the capital value of the assets, not including taxes on immovable property".
As evident from above, FBR has a long history of overstating revenue collections ['The FBR Figures', Business Recorder, July 4, 2014] by manipulating the figures, blocking bona fide refunds ['FBR's refund system bleeding both ways', The News, June 3, 2015] and taking advance payments from banks and other large taxpayers. Tax bureaucrats on the instructions of political masters inflicted shame on the country by gross misreporting of data to the IMF ['A history of figure fudging', The Express Tribune, July 28, 2011]. Subsequently, a commitment was made to the IMF to review fiscal data from financial year 1989-90 onwards. The data compiled for financial years 1994 to 2000 confirmed that tax revenues were inflated by billions of rupees. The tax collectors-data manipulators is a more appropriate term for them-showed higher tax collections through fudging of figures and the nation had to pay a heavy cost for it (not only in terms of fine paid to the IMF) but further tarnishing the image of the country in the international community that nothing is transparent here.
Never ever has FBR disclosed in its collection statements how much undisputed and established refunds remained unpaid on the closing date of the fiscal year, which must be subtracted from the gross revenue receipts to portray the correct net revenue collection. It only mentions the actual refunds issued, whereas accrued and ascertainable liability of refunds should also be taken into account to reflect the true picture of net revenue realised during a financial year. It is strange that star Finance Minister of PML-N, being a foreign qualified chartered accountant, had been ignoring this established norm of accounting. Thus, the acts of deceit, manipulation, fraud and highhandedness by FBR testify to the criminal culpability of political masters as well. It is for the new government of PTI to take cognizance of this important issue where the apex revenue authority is destroying businesses and tarnishing the image of the country by wrong projection of its performance.
The persistent manipulation of revenue collection figures by FBR is a serious, but neglected matter. Time and again, independent analysts and foreign institutions have expressed their indignation over this malpractice, but the successive governments have never ordered any inquiry into the matter. In recent months, the Supreme Court of Pakistan ordered the audit of Pakistan Railways and Pakistan International Airlines to find out the causes of rampant corruption and inefficiency in these two loss-bearing organisations. The same is the story of almost every government institution. FBR has not only been allowing people to remit billions abroad without paying taxes but has also indulged in overstating the collection figures, blocking refunds and depriving taxpayers of lawful rights like giving appeal effects after courts decided matters in their favour. Unfortunately, neither Supreme Court of Pakistan nor Standing Committees on Finance & Revenue of National Assembly and Senate till today has taken any notice of these lapses.
(The writers, lawyers and partners in HUZAIMA, IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences)
Table: FBR Tax Collection (2001-02 to 2017-18)
Fiscal Year Direct Sales Excise Customs Total of Total
Taxes Indirect Tax
2001-02 142,505 166,561 47,186 47,818 261,565 404,070
2002-03 151,898 195,139 44,754 68,836 308,729 460,627
2003-04 165,079 219,167 45,552 91,045 355,764 520,843
2004-05 183,372 238,537 53,104 115,374 407,015 590,387
2005-06 224,988 294,798 55,272 138,384 488,454 713,442
2006-07 333,737 309,396 71,804 132,299 513,499 847,236
2007-08 387,862 377,430 92,137 150,663 620,230 1,008,092
2008-09 440,271 452,294 116,055 148,382 716,731 1,157,002
2009-10 528,649 517,302 121,182 161,489 799,973 1,328,622
2010-11 602,451 633,357 137,353 184,853 955,563 1,558,014
2011-12 738,822 804,846 122,460 216,898 1,144,204 1,883,026
2012-13 743,410 842,525 120,922 239,459 1,202,906 1,946,316
2013-14 877,274 996,100 138,064 242,799 1,376,963 2,254,237
2014-15 1,033,720 1,087,790 162,248 306,220 1,556,258 2,589,978
2015-16 1,194,609 1,321,685 177,580 406,181 1,905,446 3,100,055
2016-17 1,344,226 1,328,965 197,911 496,772 2,023,648 3,367,874
2017-18 1,536,638 1,491,297 205,877 608,324 2,305,498 3,842,136