May 12 - 18, 2008

The Federal Board of Revenue (FBR) has collected Rs 755 billion during the first 10 months (July-April) of the current fiscal year raising fears of missing the downward revised target of Rs 990 billion for 2007-08.

After having a shortfall of Rs 35 billion in revenue collection first 6 months in the current fiscal year, the finance ministry has formally revised downward the revenue target. For reaching the revised target, the tax officials will have to raise Rs 235 billion in May and June.

Official figures released recently showed that the revenue collection recorded 15 per cent growth during the period under review over the corresponding period last year. However, for reaching the target this growth must be in the vicinity of 25 per cent in the next two months. The refunds/rebate paid out to taxpayers stood at Rs 53.846 billion against Rs 73.019 billion paid during the same period last year, indicating a decline of 26 percent Around Rs 20 billion was also stuck up in the litigation process during the current fiscal year. It means that if all pending liabilities had been cleared on time, the shortfall between the actual collection and the target fixed for the financial year (2007-08) at Rs 1025 billion would have be much higher.

For the first time during the last 5 years the FBR formerly known as CBR missed the tax collection target during the first quarter (July - Sept) of the current fiscal. After watching the performance in October last which showed no improvement, the authorities decided to readjust the tax collection for the first half (July Dec) without changing the overall target of Rs. 1.025 trillion for the financial year. Tax authorities believed that the short fall in the first during July - Oct period would be made in the subsequent months. The chairman FBR Abdullah Yousaf, at press briefing, admitted that the target of Rs 1.025 trillion is ambitious but assured the newsman that FBR would manage to achieve it. After finding no improvement is the Oct - Dec period as well the authorities have been left with no option but to approach the Ministry to revise downward the tax collection target for the year.

During the first six months (July - Dec 2007) the FBR faced a short fall of Rs 68 billion as it collected Rs 430 billion against the revised target of Rs 497 billion for the first six months. In a statement released to the press the chairman FBR said that the shortfall is primarily owing to recent tragic developments on the political front and ensuing disturbances in the country, which put the economy on a standstill. He said that the month of December is of immense importance with regard to revenue collection in the first half of financial year which, however, proved to be unfortunate in the wake of recent events in the country. Notwithstanding a major setback of Rs 68 billion, Yusuf expressed the confidence that the Board was expected to rope in Rs one trillion revenue collections against the actual target of Rs 1.025 trillion.

Sources in the FBR said the last Shoukat Aziz government had forced the tax authorities to set an over-ambitious revenue collection target of Rs. 1.025 trillion on the even of budget for 2007-08. Thereby, FBR had been missing its tax collection target form the first quarter. So it was not right to blame solely the deteriorating law and order situation for the huge shortfall. Actually former direct taxes had made changes in the advance tax laws and showed huge collection in the last fiscal year, which created an embarrassing situation for the existing tax managers.

According to independent economist and analyst, the potential of revenue collection is much higher than Rs. 1 trillion which FBR is finding difficult to achieve. According to them the biggest issue is the tax evasion and growing size of black economy. A conservative estimate is that Rs. 600 billions generated every year in Pakistan by parallel economy. Add to this, the black money generated through smuggling of goods and narcotics trade that is between Rs. 300 billion and Rs. 500 billion. This makes a whooping Rs. 1000 billion. When the presence of black money is so apparent, why its criminal accumulation and generation are not revealed and the offenders punished, is a question which has been baffling honest citizens. They ask, whether it is on account of lack of political will, or rampant corruption, or collusion of tax dodgers and the tax administrators at defrauding the revenue, or the political system or the effectiveness and defectiveness of laws, or the pervasive stubborn indifference of the citizens towards their duties? Those who plundered the wealth of the nation were set free to have a good time in "exile" and those who abused powers are being invited to come again for ruling and looting whatever is left.

It is not possible to determine the precise amount of revenue loss and size of black money or informal economy in Pakistan. Revenue loss estimated by World Bank because of smuggling alone in 2004-2005 amounted to 5.08 billion dollars. In 2003 quantum of tax evaded was estimated at over Rs. 450 billion. Another report estimates revenue, because of distortion in tax regulations and administrations, at Rs. 40 to Rs. 45 billion in 1989-90 and Rs. 104 billion in 1995-96. Apart from direct monetary costs of corruption, other significant costs, such as loss of government credibility, spread of injustice; distortions in resource allocations are destroying the very fiber of civil society in Pakistan.

The extent of tax evasion can be imagined by recent a statement of the chairman FBR himself. While speaking at the annual dinner of the Income Tax Bar Association at Karachi last month Abdullah Yousuf disclosed that out of the 25000 registered corporate taxpayers only 14000 have filed tax returns this year. "While around 4600 paid some income tax, an equal number stated that they did no business, and the remaining have shown losses. He further stated that although there were a total of 100000 registered persons in the sales tax with the FBR, but of them only 21000 were paying taxes. He disclosed that 94 percent of the total revenue collected on account of sales tax is paid by 1351 persons only.

Mr. Yousuf admitted there was a lot of potential, but the tax collecting machinery would also have to organize itself and use modern equipment to become efficient and transparent. He was not only critical of taxpayers' attitude, but also showed concern over performance of the tax collection machinery. Despite the fact that the reforms agenda was initiated in 2001, "still we are deficient, and a lot has to be done towards efficiency, transparency, programming and systems," he said, and stressed the need for a closer working between tax collectors and tax bars, he admitted.

The general impression that there is a rampant corruption in our tax collection organizations is also confirmed by a recent action taken by the FBR. The Board has initiated disciplinary proceedings/inquiry against dozens of tax officials, including collectors, additional collectors and deputy collectors, who made illegal refunds and rebates of billions to the Bawan Shah Group of Companies. The board had also identified senior officials of customs and excise group involved in this mega tax scam for issuing wrong Duty and Tax Remission (DTRE) approvals to facilitate fake exports of the favorite group. The action has been initiated on the recommendations of the "fact finings inquiry" being conducted by the FBR, confirming involvement of around 50 customs officers and auditors / appraisers in the biggest tax fraud case of this nature.

This is for the first time that the board has simultaneously taken action against such a large number of customs officials. The inquiry proceedings would start with the issuance of charge sheets to the officials and possible action under the Removal from Services Ordinance. In this connection, the FBR would coordinate with the National Accountability Bureau (NAB) to punish the accused officials, who were posted in Karachi during the period of scam. Sources said that the internal inquiry had confirmed involvement of customs officials in issuance of "Gold Category Status" to fake companies involved in obtaining illegal duty drawbacks. The fact finding mission has unearthed a lady collector of customs and two additional / deputy collectors of Karachi, who were primarily instrumental in issuance of bogus refunds and rebates to the company.

According to sources, the FBR has also identified 27 tax officials, including deputy collectors of customs, assistant collectors, senior superintendents, superintendents, deputy superintendents, senior auditors, auditors, who were involved in processing of fraudulent sales tax refund claims of the said group. Six additional/ assistant collectors of customs have been involved in sanctioning of illegal refunds to the group.

Sources said that the action would also be initiated against the examiners and appraisers, who submitted wrong reports after carrying out examination of the items exported by the group. The FBR is also taking action against 16-18 apprising officers and principal appraisers involved in clearance of rebate and duty drawback on the fake exports. They had also submitted wrong verification reports to the department to allow illegal rebate. There are several customs officers, who were involved in the scam, but are now retired. Similarly, some of the said officers are untraceable and other refused to appear before the fact finding inquiry. In this regard, the board would also devise some strategy to deal with these officers.