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Performance audit of FBR

In recent days, 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-making entities. The same is the story of almost every government institution. The Federal Board of Revenue (FBR) has not only been allowing people to remit billions abroad without paying taxes but has also purportedly 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 Auditor General of Pakistan/Standing Senate Committee of Senate on Finance till today has taken any notice of these lapses.

For the just ended fiscal year 2017-18, the target assigned to FBR was Rs 4013 billion that was later reduced to Rs 3935 billion. Till writing of this column, FBR did not officially announce actual collection though on a daily basis it has been collating data. Press reports suggest that collection was not more than Rs 3800 billion meaning thereby a huge gap of Rs 213 billion vis-à-vis original target. This will push fiscal deficit to record Rs 2.4 trillion in Pakistan’s history. This is not new. Every year FBR fails to collect downward revised target what to speak of originally assigned figure in the budget estimates. This widens fiscal deficit resulting in more borrowing and taking away a large part of budget for debt servicing/payment of principal amount.

FBR last year could not meet the downward revised target of Rs 3500 billion (original was Rs 3621 billion). It collected only Rs 3368 billion. In 2016, it was quick to issue a Press release taking credit that “for fiscal year 2015-16 FBR collected Rs 3130 billion, surpassing the target of Rs 3104 billion”. Many independent experts contested these figures mentioning that refunds worth billions were blocked as well as advance of over Rs 100 billion, not yet due was also included. The other negative tactic employed by FBR was delaying appeal effects so that taxpayers could not claim adjustments against advance payments or other demands.

The then Finance Minister, now a proclaimed offender of the Accountability Court and suspended senator, gave free hand to tax officials to block bona fide refunds, take undue advances from large business houses, use negative taxes like raising unjust demands and freeze bank accounts for recovery. Exporters and other taxpayers, still waiting for refunds, have been denied lawful right of payments/compensation within stipulated time. Had Ishaq Dar concentrated on growth above 6%, as done by China, India and even Bangladesh in the region, we could have avoided the present fiscal and economic mess. Tax is a byproduct of growth and harsh taxation only hampers expansion and prevents investment in existing and new businesses.

Everybody knows that collection 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 in the past Public Accounts Committee even after extorting confession from FBR bosses of wrongdoings did not take any punitive action.

The main reliance of FBR since 1991-92 has been on indirect taxes, even under the Income Tax Ordinance, 2001 that contains over 50 withholding tax provisions. The total revenue collection by FBR in 2016-17 was Rs 3368 billion. It missed the original target by a wide margin of Rs 250 billion. In 2015-16, FBR, despite imposing additional taxes of Rs 360 billion, allegedly blocking over Rs 220 billion refunds and taking Rs 30 billion as advance failed to meet the third-time revised target showing shortfall of Rs 222 billion vis-à-vis original target of Rs 2810 billion, which was first reduced to Rs 2691 billion and then to Rs 2605 billion.

Way back in 1999, tax bureaucrats allegedly inflicted shame on the country by gross misreporting of data to the IMF. Subsequently, a commitment was constituted 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 showed higher tax collections through fudging of figures.

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 successive governments have never ordered any inquiry into the matter. 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 shocking that FBR has failed to publish Yearly Book for 2016-17 even after the lapse of a year. What are they afraid of? Of course, it will help in revealing jugglery of figures and quantum of refunds blocked as well as exposing the fact that more than 90% collection was through withholding or voluntary compliance. It would also confirm the poor performance of FBR showing sharp decrease in the number of return filers during the last ten years.

FBR stalwarts have been showing higher collection figures to get bonuses, but destroying the export sector by unlawfully withholding their refunds. FBR on its own could not have indulged in this undesirable act unless backed by the government of the day. And if it is doing this at its own behest, the matter is even more serious-it proves failure of successive governments and Public Accounts Committee.

Now it is for the Supreme Court 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.

This time, the fiscal year is closed under caretaker Finance Minister, an economist and ex-Governor State Bank. It is hoped that for the first time correct disclosure of collection figures will be provided to the nation after deducting the actual amount of refunds payable-withheld for years merely to show ‘extraordinary performance’ (sic). Not only is true disclosure essential but all due refunds should be paid with compensation without any further delay. Stringent action should also be taken against those who avoided giving appeal effects in favour of taxpayers, blatantly violating order of the higher courts and Tax Tribunals.

Huzaima Bukhari and Ikramul Haq, "Performance audit of FBR," Business Recorder. 2018-07-06.
Keywords: Rampant corruption , Collection figures , Economic mess , Tax Ordinance , Revenue collection , Political masters , FBR , PML-N