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Reality of ‘statistical discrepancy’

According to Press reports, the International Monetary Fund (IMF) has started probing the figures presented by the government regarding fiscal deficit, expenses and revenue collection. This has been done in the wake of discrepancies discovered and highlighted by independent observers, including these writers, alleging deliberate exaggeration of revenue collection and understating expenses. The exposure irked the government and rejoinders were issued by the Ministry of Finance at its website dismissing the “allegations” as unfounded and baseless. Reportedly, now the IMF has taken the cognisance of the claims and counter claims, though no official confirmation is available. Figure fudging is not new to the Pakistan Muslim League (Nawaz). In fact, Pakistan was fined by IMF during the last tenure of Ishaq Dar for what his successor Shaukat Aziz called deliberate figure fudging. As expected from worthy Finance Minister of PML (N) for the second term, no lessons were leant from history, or what some people would aptly say old habits die hard.

It has been suggested in these columns time and again that the government must order forensic audit of its fiscal affairs and present its books for inspection to an independent commission comprising senior chartered accountants from reputed firms. It is constitutional duty of the government to place before the Auditor General all the record and also present the annual audit report to the general public. Every citizen of Pakistan has the fundamental right under Article 19A of the Constitution to have access to such vital information. The Ministry of Finance and FBR should not make the things controversial unnecessarily by hiding the figures and the facts from the masses.

It was reported in the press and quoted in these columns that that the State Bank of Pakistan acknowledged tax collection of Rs 2581 billion for fiscal year 2014-15 against Rs 2588 billion claimed by FBR. All independent observers unanimously predicted that FBR would not be able to meet even the third time revised target of Rs 2605 billion. The original target of Rs 2810 billion was earlier revised to Rs 2691 billion but FBR showed inability to meet the same despite three mini budgets increasing and imposing duties beyond reasonable limits. In 2013-14 as well, FBR collected only Rs 2254.5 billion against the original target of Rs 2475 billion and second revised target of Rs 2275 billion.

The collection figures of FBR always include blocked refunds of billion of rupees and advances taken from many large taxpayers. This aspect, as suggested earlier in these columns, needs a thorough probe by an independent commission as Public Accounts Committee in the past even after admission of figure fudging by FBR bosses never punished any of them. Strangely, but expectedly, till today nobody has raised this issue in the National assembly or Senate. Since elected members favour FBR bosses, they in return protect them from probe and tax audits. This marriage of convenience, rather unholy alliance, must end if we have to collect taxes from all, wherever due and stop extorting the money in the name of taxes though not due at all.

According to official figures, released by MoF, the government closed the fiscal year 2014-15 at 5.3 percent budget deficit against a target of 4.9 percent, reflecting a slippage of 0.4. According to Ministry of Finance in the consolidated federal and provincial budgetary operations, the total revenue collected was 14.4 percent of the GDP or Rs 3.391 trillion against the total expenditure of 19.7 percent or Rs 5.387 trillion. Tax revenues stood at 11 percent of the GDP and non-tax revenue at 3.3 percent. Current expenditure was 16.2 percent of the GDP or Rs 4.424 trillion of which 4.8 percent (Rs 1303 billion) of the GDP was spent on mark-up payment and 2.5 percent (around Rs 698 billion) on defence. The government spent 4.2 percent (Rs 1140 billion) on development and lending. The document also noted a “statistical discrepancy” of Rs 177 billion during the last fiscal year. What is the reality of this “statistical discrepancy”? After exposure of jugglery of figures by Ministry of Finance in media, at last on August 29, 2015, the lapse, or deliberate act of cheating, was admitted. The government owes not only an explanation to the entire nation for this lapse but also punish the person(s) responsible for bringing bad name to the country.

According to a report in an English-language daily by Shahbaz Rana, “this is the second time statistical discrepancy has swelled to such a large extent. In 2013-14, the government had listed Rs 156 billion ($1.5 billion) gifted by Saudi Arabia under the head. The statistical discrepancy head was previously used for unknown expenses, a finance ministry official confirmed. But this time, the government is not sure whether to list revenue or expenses under it.” The report went on to claim that according to an official of Ministry of Finance, the budget deficit was Rs 1.456 trillion or 5.3% of GDP “when factoring in the borrowings made by the government”. However, he added that the difference between expenses and solely the revenue comes in at Rs 1.634 trillion or 6% of GDP. Independent economists have been claiming that deficit, excluding circular debt payments, was 6.4% of GDP. “There is no explanation of this statistical discrepancy of such a large magnitude. The country has the right to know what is behind this discrepancy,” said ex-Finance Minister Dr Hafiz A. Pasha. This is indeed a serious matter and must not go unnoticed. It should be explained by the Finance Minister to public at large and elected members at the floor of Parliament.

Notwithstanding the controversy over figures, the sad and painful story on fiscal front remains the same-unabated borrowings and selling of profitable public institutions and assets to meet the burgeoning budgetary deficit. One of the major weaknesses of economic governance is unchecked wasteful spending on the monstrous government machinery and inefficient Public Sector Enterprises (PSEs)-there is no will to go for structural reforms to remedy the situation. Unwillingness to end the tax-free benefits and perks given to the holders of public office and militro-judicial-civil complex, and failure to collect taxes from the rich and mighty is worsening the country’s economic plight. There is no scarcity of resources-as propagated by the rulers to shift blame on others-but issues are related to lack of management and necessary reforms on the part of political leadership and militro-judicial-civil complex, the de facto beneficiaries of the existing economic system.

(The writers, lawyers and partners in law firm HUZAIMA IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)

Huzaima Bukhari and Ikramul Haq, "Reality of ‘statistical discrepancy’," Business recorder. 2015-09-04.
Keywords: Economics , Fiscal policy , Revenue management , Tax collection , Taxation , Auditing , Pakistan , IMF , PMLN , FBR , GDP , PSE