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Height of ignorance & naivety!

Dr. Ikramul Haq

The myth that technocrats can run government affairs better than bureaucrats is busted at least in Pakistan in recent months by Dr. Abdul Hafeez Shaikh, Advisor to the Prime Minister on Finance, Revenue and Economic Affairs. Firstly on November 11, 2019 he misquoted price of tomatoes and then on January 1, 2019 while he praised officers of Federal Board of Revenue (FBR) for performance in the last fiscal year when revenue registered negative growth of 0.4%, and admonished them for performance in the first six months of the current fiscal year when growth is 16% higher than last year!! One wonders what else can be height of ignorance and naivety at such a high level, especially when the biggest challenge faced by the country is on the economic front. It is equally surprising that even then our Prime Minister, Imran Khan, keeps on praising his economic team, which is headed by Hafeez Shaikh.

Hafeez Shaikh visited the FBR for the first time on January 1, 2020 after taking charge of revenues and economic affairs on April 20, 2019—that is after a lapse of over eight months. In this maiden visit of FBR, he made more ludicrous remarks than the earlier ones—now known as the biggest jokes of 2019—claiming that tomatoes were selling at Rs. 17 per kilo in Karachi sabzi mandi [vegetable market]. On the said date the rate in the city’s wholesale market was over Rs. 250 and sold by street vendors at Rs. 250 to Rs. 300 per kilogram! According to a Press report, Hafeez Shaikh appreciated “FBR’s performance over the past two years, but showed dissatisfied with their work during the current year”. Apparently, he took no briefing or bothered to study contrary facts contained in ‘FBR Year Book 2018-19’.

Let us update Hafeez Shaikh: the target assigned to FBR for last year was Rs. 4435 billion, which was revised downwards twice [first to Rs. 4398 billion and then to Rs. 4150 billion].FBR collected only Rs. 3828.5 billion which was “0.4% lesser than the collection of the previous fiscal year”. This resulted in an all time high record of fiscal deficit of 8.9% of GDP as per State Bank of Pakistan’s ‘Annual Report 2018-19—The State of Pakistan’s Economy. As regards, fiscal year, 2017-18, the revenue target for FBR was Rs. 4013 billion that was later revised downward to Rs. 3935 billion and it collected only Rs. 3842 billion. One wonders how naively Dr. Hafeez Shaikh appreciated the FBR for the last two years when performance was poor! 

Let us make a little detailed dissection of FBR’s real performance for Dr. Hafeez Shaikh for years he praised them:  FBR Year Book 2018-19testifies to the fact that higher collection was achieved due to exorbitant sales tax on POL products, due to over 70 withholding income tax provisions and enhancement of their rates, blocked refunds of billons and by taking advances from taxpayers. This all is documented in ‘Collect aggressively, refund reluctantly’ [Daily Times, December 22, 2019].

FBR’s Year Book 2017-18 concedes that “…withholding taxes [WHT] contribute “a major chunk i.e. 65% to the total collection of income tax”. It admits that 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%).

Hafeez Shaikh must examine data for the first six months of 2019-20 from the above perspective. It is worth mentioning that FBR internally revised the first half year’s target to Rs. 2367 billion from the earlier projection of Rs. 2495 billion. On December 23, 2019, IMF agreed to a reduction in full year’s target by Rs. 285 billion—originally it was Rs. 5503 billion.

The data released by FBR does not show what was the contribution of withholding taxes and how much was collected with own efforts, by countering under-invoicing, misdeclaration, non-reporting of sales by large entities, audit, detecting tax evasion, avoidance, and issuing notices to the non-filers. This is where the actual weakness of FBR lies and unless it is remedied, the targets cannot be met even in future. It is by now well-established that the main reliance of FBR since 1991 has been on indirect taxes, even under the Income Tax Ordinance, 2001 that after Finance Act, 2019 contains over 75 withholding tax provisions, many of which constitute minimum tax liability.

Justifiably, Hafeez Shaikh was highly perturbed over FBR’s missing the target by a margin of Rs. 287 billion after downward revision to Rs. 2367 billion from Rs. 2495 billion. However, he rightly praised Syed Muhammad Shabbar Zaidi, a renowned chartered accountant and tax expert, appointed Chairman FBR from the private sector on May 7, 2019 as under his command during the first half of current fiscal year FBR showed growth of 16% over last year’s collection of Rs. 1784 billion in the corresponding period.

Chairman FBR in his detailed briefing highlighted that domestic tax collection increased significantly showing 21% growth in income tax, 34% in domestic sales tax and 25.6% in federal excise duty. Due to fall in imports, gross collection of customs at Rs. 325 billion fell short of the target of Rs. 414 billion by 21.5%.  Collection of income tax at Rs. 790 billion registered a shortfall of 7.92% vis-à-vis target set, for sales, it was 6.21% and for federal excise duty 12.5%.

Perpetual failure of FBR to meet assigned targets is not something new. A large part of the blame goes to political masters who keep on giving amnesties, waivers and immunities. All this is documented in ‘Amnesties & tax losses’[Huzaima & Ikram, 2019].

 It is still possible to achieve FBR’s downward target of Rs. 5238 billion, if Hafeez Shaikh and Shabbar Zaidi give due consideration to what was proposed in ‘Raising Rs. 8 trillion, Daily Times, November 12, 2017 enabling Pakistan to overcome monstrous fiscal deficit, get rid of fresh loans, achieve rapid economic growth and provide social services to all citizens.

Hafeez Shaikh also reportedly asked the FBR officials about their plan for the next year and quoted as: “Where is your plan and why don’t you discuss [it] with me”? He further quoted: “why don’t you discuss your plans with my economic team?” He reportedly went on to say that his team was able enough to gear up revenue collection. It is rather shocking that since assuming the charge of the office, he was not giving plans and policies to FBR and was even not aware about what they were doing! If it is all true as reported in Press, then the Prime Minister needs to take serious note of the existing state of affairs—how is it possible that his economic team and tax managers are not in liaison with their strategies about revenue mobilisation or have yet not prepared the same? If it is so, this is an open mockery of governance. 

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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)

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