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PTI’s forgotten tax reforms agenda

Dr. Ikramul Haq

Prime Minister Imran Khan, while addressing top officials of Federal Board of Revenue (FBR) on November 13, 2019, expressed dissatisfaction over performance of apex revenue authority. He asked them to give their input regarding substantial tax reforms approved by him on October 3, 2018 to collect taxes of Rs. 8 trillion, otherwise it would not be possible to run the financial affairs of the country facing monstrous fiscal deficit and rising burden of debt servicing.

In fiscal year 2018-19, total payment, as budget documents, on account of debt servicing was Rs. 1987 billion against the budgeted figure of Rs. 1620 billion. Allocation for the current fiscal year is 2891 billion, 78 % higher than last year! If FBR achieves reduced target of Rs. 5503 billion (original fixed in budget was Rs. 5555 billion and after request from Government, IMF agreed for reduction to the tune of Rs. 233 billion against the demand of Rs. 300 billion), after transfer to provinces under 7th National Finance Commission (NFC) Award of Rs. 3200 billion, net tax collection available to the federal government will be Rs. billion 2300 billion, which is short by Rs. 591 billion of debt servicing of Rs. 2891 billion!! This shows the gravity of the fiscal crisis faced by Pakistan as aptly highlighted by Prime Minister.

Though the Prime Minister admitted that FBR lacks people’s confidence as well as there is huge lack of trust between the State and citizens regarding prudent spending on taxes collected, he failed to mention the massive revenue loss caused by his own and earlier regimes through money whitening schemes. The man he selected for reforming FBR was the most zealous proponent of the asset whitening scheme that was opposed by many in the federal cabinet. Now the Prime Minister wants a new tax agency to be established by the same person who wants to hold back the idea after angry protest by FBR’s top notches. Imran Khan conceded to their presuure and asked them to suggest reforms! For such occasions, great Urdu poet Mir Taqi Mir very correctly said: Mir kya sada hain, beemar huay jis ke subub; Usi attar kay londay say dawa laity hain (What a simple soul is Mir that he seeks medication from the healer’s boy, who is the cause of his ailment).

Before coming to power, top leadership of Pakistan Tehreek-i-Insaf (PTI) was calling tax amnesties as “immoral”, “undesirable”, “unlawful” and a “slap on the face of honest taxpayers”. After coming into power, the PTI took many U-turns, one of which was offering asset whitening scheme, drafted proudly by Shabbar Zaidi, resulting into tax losses of billions of rupees. The Government of PTI notified its first whitening scheme—Assets Declaration Ordinance, 2019 through a Presidential Ordinance on May 14, 2019. The scheme gave generous incentives to those who had not been paying their taxes honestly, concealing and/or understating assets/incomes/sales/expenses and cheating the State.

The tall claims of Imran Khan, especially of reopening the cases of beneficiaries of asset whitening scheme of PML(N) were exposed by the Director General of Directorate of International Taxes of FBR, who told the House Committee of National Assembly on November 7, 2019 that out of 191 persons who availed the 2018 and 2019 asset whitening schemes, tax received by FBR was only Rs. 4.6 billion against declared assets of Rs. 94.2 billion. Thus these 191 people paid on an average 4.9% of the value of assets in taxes!! It was conceded by Chairman FBR that they could have recovered 70% [as per provisions of Income Tax Ordinance 2001 on a concealed asset, there is a maximum income tax of 35% along with 100% penalty, bringing the total tax liability to 70%] of the assets. Tragically, the governments of PTI and PML(N) settled at just 2-4%, remarked Asad Umar, former Finance Minister of the PTI and Chairman of the Standing Committee. He added: “This tells why all political parties love to give tax amnesty schemes and also shows the elite capture of Pakistan’s economy and politics”.

It is tragic that Imran Khan till today has failed to realise how his advisors let him down by foregoing 70% tax on untaxed assets for which definite information was available through multilateral treaty signed by Pakistan. In only 56 cases where data was shared by the OECD, due to PTI’s tax amnesty, national exchequer suffered loss of Rs. 20.6 billion.

Instead of blaming the tax machinery, Imran Khan must take a look at the attitude of his hand-picked advisers. The issue of ‘bureaucratic capacity’ has not been tackled effectively by PTI after coming into power though in initial days it showed eagerness to take administrative reforms as top priority by appointing Ishrat Hussain as Advisor to Prime Minister for Institutional Reforms & Austerity. In his inaugural address to the nation after assuming office, Imran Khan gave an impressive speech outlining his vision for ‘Naya Pakistan’, promising sweeping changes at a massive level, to cut down on expenses and to introduce structural reforms for revamping the cash-strapped country. What happened afterwards is known to all. He started depending on powerful ex-DMG (now PAS) cadre that frustrated every effort of meaningful structural reforms in bureaucracy, especially in Federal Board of Revenue (FBR), the most vital organisation for economic salvation of the country by optimizing taxes and facilitating investment and growth. PTI, after two supplementary finance acts and Finance Act, 2019, allowed FBR to follow the old policies of Ishaq Dar by resorting to oppressive taxes, destroying economic growth and widening fiscal deficit.

It is high time that Imran Khan, rather than taking advice from IMF and World Bank imposed advisers and input from FBR’s top hierarchy (who are part of the problem and not solution), revert to forgotten comprehensive tax policy it unveiled on August 24, 2012. In the said policy, PTI proposed concrete and rational measures for revenue generation in Pakistan. These tax measures have been totally ignored after coming into power, courtesy the influence of advisers imposed by foreign lenders, old-DMG-babus and FBR’s Revenuecracy. If the said policy is implemented, it can change the fate of Pakistan. The details of the said policy can be seen in PTI agenda not a tough sell, Business Recorder, August 31, 2012.

The dream of making Pakistan a self-reliant economy can never be realized unless the mighty sections of society pay due taxes and at the same time national tax policy induces investment, industrialization and employment generation by taxing unproductive sectors to divert money towards productive sectors. Above all, it is necessary to provide socio-economic justice to all the citizens—progressive taxation ensures redistribution of income and wealth by taxing the rich for the benefit of the poor. By improving compliance and broadening tax base, it is not at all difficult to raise funds of over Rs. 8 trillion at the federal level and Rs. 2 trillion at provincial levels. It was highlighted in ‘Raising Rs. 8 trillion![Daily Times, September 20, 2018] but the worthy Prime Minister and his economic team did not bother to study it, let alone taking concrete measures to implement the same.


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

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