Huzaima Bukhari & Dr. Ikramul Haq
On August 24, 2021, Dr. Muhammad Ashfaq Ahmad, a junior but highly competent officer of Internal Revenue Service (IRS) in grade-21 assumed the charge of Chairman Federal Board of Revenue (FBR). The appointment of chairman ignoring many senior officers may attract criticism from some quarters. However, it should not be ignored that his performance as Member Tax Operations (IRS) along with charge of Director General of International Taxes has been extraordinary. The seniority principle cannot be rigidly applied for selection posts. Reportedly, this change was warranted after the hacking of FBR’s data as we highlighted in FBR under cyberattacks: Wake-up call—I, Business Recorder, August 19, 2021 and Of cyber attacks and cyber security, TNS, [Political Economy] The News, August 15, 2021.
The people are convinced that for them mere change of chairman at FBR does not matter unless the tax system is thoroughly reformed to help higher and sustainable growth and generate revenue as per real potential, which is not less than Rs. 8 trillion [Tapping the real tax potential, Business Recorder, March 24, 2017]. They are of the view that the new captain of FBR will also not stop field formations from arbitrary taxation and negative tactics to squeeze the existing taxpayers as was done in the past by his predecessors. He has to meet the target of Rs. 5.8 trillion set for the current fiscal year under the ongoing 39-month EFF Programme of International Monetary Fund (IMF) with Pakistan approved on 3 July 2019. The FBR has failed to meet original tax targets for the last three years of the present coalition government of Pakistan Tehreek-i-Insaf (PTI).
It is a fact that nearly 85% taxes of IRS are collected at source—share of customs is only 15% in total tax collection of FBR. Collection out of current/arrases demand by IRS has been less than 10% even before Covid-19 endemic. Further, due refunds of billions unlawfully upheld, if deducted, the net increase in collection since June 2013 is negligible. Blame for blocked refund mainly lies with the last government of Pakistan Muslim League (Nawaz)—see details in Unpaid refunds, Business Recorder, July 17, 2020, therefore, unless some fundamental changes are made the story of early years will be repeated. The position, however, can change if comprehensive reforms are made as suggested in Meaningful budget proposals, Business Recorder, April 21, 2017.
It is unfortunate that FBR has become handmaid of political masters. For showing higher tax collection, FBR is not clearing refunds, rather unlawfully creating and recovering disputed tax demands even before orders from an independent appellate forum. Major responsibility of tax collection has already been shifted onto the shoulders of withholding agents. Sectors contributing to the economy have been facing difficulties due to FBR’s highhandedness, coupled with faulty tax policy, highlighted in Advance tax, refunds and compensation—I, Business Recorder, January 15, 2020, Advance tax, refunds and compensation—II, Business Recorder, January 16, 2020 and Advance tax, refunds and compensation—III, Business Recorder, January 17, 2020.
It is a matter of record that appointments of chairmen of FBR since 2009—from Sohail Ahmad to Salman Sidique to Mumtaz Haider Rizvi to Ali Arshad Hakeem to Ansar Javed to Tariq Bajwa to Nisar Khan to Dr. Irshad to Tariq Mahmood Pasha to Rukhsana Yasim to Mohammad Jehenzeb Khan to Syed Muhammad Shabbar Zaidi to Nausheen Javaid Amjad to Muhammad Javed Ghani to Asim Ahmad—rendered things from bad to worse. Cronyism and corruption reigned supreme in FBR and before taking charge by Dr. Ashfaq, it has lost credibility, especially after cyberattack on 12 August 2021—it took 72 hours to restore it partly—though perpetual denials of using pirated software were made. It is thus not surprising that FBR has earned notoriety in all areas: from data leakage to weak cybersecurity, from misreporting of figures to corruption, from highhandedness to inefficiency. Time and again, different chairmen of FBR have admitted before the Standing Committees of Parliament on Finance & Revenue that tax reforms had miserably failed.
On November 10, 2015, then chairman FBR, Tariq Bajwa, admitted before the Senate Standing Committee that in order to issue all refunds FBR had either to impose more taxes or government to issue bonds. Since his days huge refunds have piled up and FBR is not ready to pay all these in one go to show higher (sic) collection—see detail in ‘Blocked tax refunds: FTO comes under pressure, removes report from website’. Adding insult to injury, successive governments kept on accusing businessmen of evading billions, submitting incorrect declarations etc. but frequent amnesties were extended including two by the present government. They never explain how tax evasion is possible without the connivance of tax collectors and huge loss caused by amnesties.
Unfortunately, nothing has ever been done against FBR’s high-ups for causing losses of billions of rupees every year to national exchequer—Dismantle containers’ mafia, Business Recorder, September 14, 2018—proving it beyond any doubt. It is strange that the Standing Committees on Finance & Revenue of National Assembly and Senate have also never recommended removal and punishment of FBR’s top notches even after established cases of corruption, over-stating of collection figures, making false statements and misleading the entire nation.
The provincial governments are also guilty of protecting the rich and mighty by not collecting tax on “agricultural income” as per prevailing laws. The rich and mighty in Pakistan do not file tax returns but FBR issues notices to filers alone! It has failed to tap at least 20 million income tax filers (Historic collection by FBR, Business Recorder, July 2, 2021). From 2003 to 2020, FBR and provincial tax agencies have miserably failed to improve voluntary tax compliance through a strong deterrence—the automation system. Tax culture will never improve unless deterrence is created along with assurance to people that taxpayers’ money is actually being spent for their welfare (Taxes and social democracy, Business Recorder, July 24, 2021).
There is a need to dismantle the existing oppressive tax system and reconstruct it to restore public confidence in the State but even a good tax system cannot work if the machinery to run it is incompetent, corrupt and inefficient.
The biggest challenge before new Chairman is to work on making FBR an efficient national tax authority, details are available in ‘Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms’, Business Recorder, August 31, 2018.
It is high time that FBR stops harassing compliant taxpayers and protecting the cheat. It should have zero tolerance for non-filers and tax evaders. Tax policies should encourage investment, especially for all those who generate more goods and services, leading to greater employment opportunities. A higher and sustainable economic growth can increase taxes after revamping of the entire system and devising a rational tax policy.
As elaborated above, challenges before the new chairman are enormous—the most daunting one is how to undo the ugly legacy of cronyism, favouratism, nepotism and mediocrity. Will he be able to rise to the occasion? Only time will tell.
The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE)