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Whither Tax Reforms?

Dr Ikramul Haq[1]

The tall claims made by the government about six months back that by 1st January 2001, it would introduce majors tax reforms and even a new Income Tax law proved to be yet another promise not kept. The deadline has now been extended to the budget time when the Finance Ordinance will be announced. This was not something that came as a surprise to many, including myself, as most of the claims by our government are “wo wada hi kya jo wafa ho gaya” (promises are not made to be fulfilled). We would have been much happier if the hasty attempts to further destroy the existing enactments and tax structures were abandoned, but it seems that some vested interests are bent upon to do so in the hope that they will get enormous money (for this poor nation it will be a loan of $ 100 million) from the World Bank for this vandalism. This is the most painful part of the whole exercise.

A news item, published in an English daily on 21 February 2001[2], exposes these vested interests, which have already approached the World Bank for $100 million loan to implement some “half-baked”, substandard and meaningless reform proposals. The task force on tax administration reform, the report says, is facing a dilemma as the consultants hired to conduct studies have reportedly produced substandard work, which, it is feared, may not be implemented. “The task force has, though recently, expressed its reservations over the work produced by the consultants; this fact is being concealed from the government to save many from embarrassment. One of the members of the task force has even resigned protesting over the quality of the reforms being recommended finally”, the report reveals.

It is worthwhile to mention that after assuming power, the military government hired 17 advisors/consultants to help the financial wizards in pulling the country out of its present economic quagmire, for which tax reform was on the top of the agenda. Most of these advisors/consultants have already drawn hefty remunerations, besides enjoying other facilities. The financial impact of public spending on these “experts” runs into millions of rupees. Among the 17 advisors/consultants five are serving on honorary basis even though the government provides them secretariat facilities. Two of these honorary experts were also provided club class air tickets to the United States.  Eight of these experts were hired by the Chief Executive (CE) which include one recruited through the Establishment Division; three appointed by the finance minister; four by the secretary-general finance who himself is a re-employed retired government servant; and one by the State Bank of Pakistan.

Those appointed by the CE include Syed Shahid Hussain, Chairman task force on reform of tax administration. He was appointed on honorary basis for a period of one year (extendable). Secretariat facilities were provided to him. He was also given club class air ticket to the USA. Dr Ehsanul Haq was appointed by the CE as consultant for a study on an anti-corruption strategy for a period of five months with effect from Aug 15, 2000. He was offered Rs 4,875,000 for the contract. Dr Zafar Iqbal Cheema was appointed by the CE as consultant for a study on human resource management for a period of three months in August 2000. He got Rs 4, 415,000. Dr Anjum Nasim and Dr Ali Cheema were appointed consultants for a study on business processes & interface between tax administration & taxpayers (on income tax and sales tax sides respectively) for a period of three months in August 2000 for Rs 4,507,000 and Rs 4,766,000 respectively.

Masood Aziz, consultant for study on business processes & interface between tax payers and tax administration was also appointed in August 2000 for a period of about four months for Rs 4, 000,000. Sidat Hyder Murshad was hired by the CE as consultant for a study on information management in August 2000 for about four months for Rs 2,500,000 (2.5m). The CE also appointed Dr Tariq Hassan as advisor to the finance minister through the Establishment Division. Mr. Hassan has been appointed for a period of two years and offer maximum package of Management Pay Scale-I.

All the four appointees of the finance minister were engaged on honorary basis but they enjoyed secretariat facilities. These included Javed Ahmad Noel, advisor/ chairman task force to prepare measures to convert government borrowing according to Shariat injunctions; Fateh M Chaudhry, member debt reduction & management committee; Saeed Ahmad Qureshi, chairman committee for redrafting the Income Tax Ordinance; and Dr Pervaiz Hasan, chairman debt reduction & management committee[3].

This is the way our rulers have been handling the crisis situation and making “sincere” and ‘concrete” efforts to reform the tax system. The borrowed money from IMF and other donors, who have been imposing people-hostile conditions, has been wasted in a ruthless manner on the perquisites of the so-called experts. One would have no irk or objection if they have delivered the goods after taking substantial amounts. But they not only failed to meet the deadlines, the reports submitted by them are reportedly much below the required standards. I have only studied one, which is totally ill conceived clearly showing that information was collected fro here and there and was put together in a shabby manner. I am positive that any good Deputy Commission of Income Tax (who gets less than Rs. 10,000 per month as salary) could have produced a much better report on the subject from his first hand knowledge of the issues involved. But our rulers and foreign masters want gora sahibs to do the job, though they never chose to live in this country. They are totally oblivion of our mundane realities. One wonder what reforms can they suggest? They hardly know the ground realities.

 The consultants hired from a local university have no idea what tax laws and procedures are in Pakistan. As regards ex-bureaucrats, they are the people who should have been avoided as in their own times in power, they destroyed the tax systems to show higher “collections” for securing extensions. One of them, I remember, evolved a rather innovative way to increase revenue by amending the law that all the companies must pay tax for 18 months rather than for 12 months! The man is still a federal secretary on contract in 22 Grade (even after retired about 5 years back). What a tragedy that Mir kya sada hain bimar huay jis ka sabub, usi attar kai londe se dawa latain hain (What a simple soul is poor Mir that he still takes prescription from the man who was the cause of his illness.

According to the new item, three of the five reports (on different aspects of the tax administration reforms) currently under circulation for comment of different authorities are found far away of the target and too generalized. Despite this the authorities have already approached the World Bank for $100 million loan to implement these “half-baked” reform proposals. However, the World Bank has reportedly told the authorities to first firm up their proposed reform. On December 16 while giving a presentation to the Chief Executive on the recommendations of the Task Force a very rosy picture was portrayed with regard to the future shape of the tax collecting machinery. However, only five days before that (on Dec 11) Syed Shahid Hussain, Chairman of the Task Force, in a letter addressed to all members and advisors of the task force, admitted “major gaps” in the consultants’ analyses.

Mr. Shahid Hussain reportedly observed that the “findings and preliminary conclusions” were also not well integrated, whereas the recommendations were not clearly forthcoming. He maintained that the conclusions required additional supportive data and the recommended opinions more details. Referring to the presentation of consultants of their work to the Finance Minister on Dec 9, 2000, Mr. Shahid Hussain recognised that presentations on human resource management, corruption and sales tax were relatively good but those on income tax, customs and information management were inadequate.

After the Dec 16, 2000 meeting, the consultants were given Jan 10 deadline to resubmit their second draft final reports, though some of the members did say that enough time should be given to the consultants to firm up their recommendations which should be specific and to the point. None of the six consultants could submit their report till Jan 10. Later on receiving these reports that were reviewed without interacting with the Task Force’s sub-groups (set up for the purpose), the task force secretariat recirculated them (reports) early this month to the members and advisors of the Task Force. But without giving them enough time to study, the members were asked to discuss the reports on corruption and sales tax on Feb 9 and 10 respectively and on 16, 17 and 18 the reports on customs, income tax and human resource management. The documents quoted in the news item revealed that some of the members had maintained that the schedules proposed for the review of the reports would not allow the members a reasonable opportunity to thoroughly analyses and submit their comments.

The task force secretariat was also told that review of the reports by the Task Force could not be meaningful without first having the comments from the sub-groups and more particularly the Central Board of Revenue. One of the members of the Task Force, Athar Minallah even tendered his resignation on Feb 8 for not being provided enough opportunity to study these reports before their discussion by the Task Force. Sufficient time, he emphasized in his final letter, was particularly necessary in the backdrop of the members’ concerns regarding the quality of the consultants and of their output till Dec 2000 when the task force last met.

The alleged reports of poor quality of reports were again published in a newspaper[4] claiming that: “Some consultants of the task force on tax administration reform have approached the Central Board of Revenue authorities with a view to change their report according to the wishes of the CBR officials. These contacts are said to be part of the over-all efforts of the concerned authorities to get these reports through before reaching a possible impasse. In a recent meeting with some of the consultants, the CBR authorities criticised their recommendations. The consultants agreed to amend their reports as per desired by CBR officials who were to be reformed on the basis of these very proposals.  The report claimed that the finance ministry admitted that the work produced by the consultants was substandard. “The kind of stuff they have recommended is disappointing,” a source commented and said, “much better reports could have been produced by the government officials and that too without wasting any money.”  A total of six consultants were hired by the task force to prepare reports on six major areas, including   customs business processes, income tax business processes, sales tax business processes, corruption, human resource management, and information management. According to the ministry sources, each consultant was offered millions of rupees for the job they were assigned to. However, they were selected without following the standard procedures or making a serious effort to get the best from the available lot. One source even alleged favouritism by the authorities that hired these consultants on hefty salaries. The planning commission and the World Bank had initially some objections to the appointment of the consultants without following the transparent government procedure (involving bidding process). The planning commission was reportedly overruled. However, secretary of the task force, Ahmed Khan, when contacted, said that no objection was raised by the two and added that the ECNEC had relaxed the standard procedure and allowed the authorities to hire the consultants of their choice. He insisted that the World Bank, the finance minister, the secretary-general and secretary finance had approved the appointment of these consultants. Some members of the task force, on condition of anonymity told Dawn that they were also not consulted while making these appointments rather the consultants had been hired even before the first meeting of the task force. The secretary of the task force, however, insisted that the members had given their approval over these appointments. Three of the consultants – Dr Anjum Nasim, Dr Ali Cheema and Dr Ahsan – are economists and serving as academician in LUMS. According to sources they had no relevant experience of the work they were assigned. Another consultant, Masood Aziz, got retirement from customs service only two years back and the sources did not see any reason for his appointment when the government could find the expertise of his level from among the serving customs officials.  The secretary of the task force, however, insisted that the members had given their approval over these appointments. Three of the consultants – Dr Anjum Nasim, Dr Ali Cheema and Dr Ahsan – are economists and serving as academician in LUMS. According to sources they had no relevant experience of the work they were assigned. Another consultant, Masood Aziz, got retirement from customs service only two years back and the sources did not see any reason for his appointment when the government could find the expertise of his level from among the serving customs officials”.

The Ministry of Finance later contradicted the reports published in the section of Press [not Business Recorder] that quality of the reports submitted is substandard. It says:

“The reports submitted by the CBR consultants are comprehensive and of high quality. The task force is fully satisfied by the quality work done by the consultants and is also hopeful that its reports will lay the foundation of new face of [the] CBR”.

The newspaper [Dawn] stood by its story[5] and claimed that it was based on official documents, including those signed by the chairman, Syed Shahid Hussain and members of the task force. It claimed that: “These documents convey dissatisfaction of the chairman and members over the work done by the consultants. Some selected excerpt from a letter (N.No.1 (1) S (Restructuring) 2000 signed by Syed Shahid Hussain and issued to the members/advisors of the task force reads as, “I explained your (members) concern to the consultants. They were told that there were major gaps in their analyses, the findings and preliminary conclusions were not well integrated, and the recommendations were not clearly forthcoming. The conclusions required additional supportive data and the recommended opinions more details….”Another letter, signed by a task force member said: “The presentation made by the consultant on business processes were unsatisfactory and devoid of quality. The presentations lacked depth and technical expertise … the consultants did not have the capacity to produce quality work. Presentation made by the consultants on business processes relating to customs was so unsatisfactory that it had to be aborted. The flow charts were basic and contained such basic mistakes which reflect lack of familiarity with the terminology used in the business processes relating to customs.” A member of the task force – Athar Minallah – while tendering his resignation from the task force wrote to Mr. Hussain, “it now appears that none of these suggestions (discussed earlier) have been considered as reasonable or acceptable at your end as now it has been decided to press forward with the consideration and clearance of the reports without providing members of the task force an adequate opportunity to examine the quality and merits of the product which has been prepared at enormous cost….” Besides it has also been confirmed by the spokesman for the Establishment Division that the secretary of the task force was charge-sheeted for hiring a dismissed income tax officer as a consultant of the task force”.

This is the story (sordid and disgusting) of tax reforms so far. The so-called experts invited from abroad (who cannot even drive themselves home on Pakistani roads) are not capable of understanding the ground realities prevailing in Pakistan. They may be very competent, and sincere too, but the task of tax reform in Pakistan cannot be successfully carried out by them or the tax bureaucrats sitting in CBR. The present Chairman and Members of CBR were termed as “most honest” by Chief Executive in his Press conference in Lahore on October 10,2000. What a pity that to be honest is a qualification in this country, whereas it is an accepted and required norm in civilized societies. This shows the terrible level of our moral decay; we always look for “honest” people. The important question is what is the requirement of the job; “honesty” alone or honesty with competence. The CE has not “certified” them as the most “competent” as well. As regards his certification of “honesty”, all know that what is what in this Hamam. The Chairman of the Task Force certainly lacks insight into the peculiar socio-economic circumstances prevailing in our society. How can he cure the system when he himself is not part of the system?

 The local experts are now repenting as to why they devoted their precious time for the whole exercise. Of course all of them are respected names in their fields, and they joined hands with the government for a noble cause of national importance. However, they have been deceived by the crooked bureaucrats and greedy consultants; an unholy alliance of so-called experts coming from abroad and their local lackeys sitting in the bureaucracy, universities and elsewhere, knowing nothing about the taxes, but very keen to make money or fulfill the agenda of their foreign masters. They are all Moeen Quershis, claiming to be sons of the soil, but getting their NICs on arrival at the airport.

People raised a number of important questions, when the Task Force (sic) was formulated by the government to suggest tax reform. The most important ones are:

  • Do we really need a new Income Tax Law?
  • What is wrong with the present one?
  • Can we really improve the tax system and tax apparatus by just promulgating a new law?
  • Do the present government against whom taxpayers have no right to vote has legal or moral authority to enact a new tax law?

These and many other questions of pivotal nature have not been addressed publicly and instead wasteful adventures are made by neem-hakims (quacks) to further destroy the existing tax legislation. We do not need a fresh legislation in any tax laws. However certain amendments are required that should be made after proper consultation with all the concerned and by eliciting professional advice. I tried a pun by drafting a new law (sic), just to prove my point that if only rewriting a new code is the solution of the problem, it can be done single-handedly by many of us and there is no need to waste colossal money and bringing in so-called experts from abroad and hiring of exorbitant local consultants on for this meaningless task. However, they even failed to appreciate my pun and seriously discussed my draft in a meeting. This shows the level of their intellect. If they cannot understand an innocent pun, one wonders what havoc they are going to play with the existing tax laws, procedures and system. May Allah save all of us from their recklessness.

The Royal Commission on Taxation in Canada (the Carter Commission) and the Musgrave Commission in Columbia are said to have done the finest work up to that time in applied public finance because of their comprehensive analysis, rational approach and recommendations which could not have been possible, if a short time frame had been prescribed. Relatively successful reforms in Indonesia, Jamaica, Malawi, etc., were carried out in three to four years’ time and these involved substantial preparation and transition arrangements including extensive consultations with all the parties affected by tax reform. One wonders how in Pakistan, this task can be achieved in just a few months? All the members of the Task Force and the worthy Finance Minister are living in a Fool’s Paradise. What magic wand Mr. Shahid Hussain has brought from Washington DC? The tax reform programmes and strategy involve continuity in key decision-makers and major educational campaigns concurrent with the introduction of tax reform proposals to familiarise taxpayers with the new requirements. In Pakistan our undemocratic rulers, against whom we have no right of representation, want to do it in a slip shot manner, just in a few months time without any public debate and democratic process, ignoring what devastating effects it can have for the large majority of the people.

[1] Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. He is also a member of the visiting faculty of the Institute of Direct Taxes in Lahore. He served for 12 years as Deputy Commissioner of Income Tax. He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law, some of which are co-authored with his wife, Ms Huzaima Bukhari, Additional Commissioner of Income Tax. He has been awarded Doctorate of Law for his research: Tax Reform in Quasi-Constitutional Perspective.


[2] Experts’ poor work baffles tax body, Ansar Abbasi, Dawn, 21 February 2001.


[3] Dawn, 1 December 2000.

[4] Experts want to change report on tax reforms, Dawn, February 22,2001

[5] CBR’s Clarification, DAWN, 25 February 2001.

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