FBR chief highlights tax system flaws, calls for reforms

KARACHI: Chairperson of the Federal Board of Revenue (FBR) Rashid Mahmood Langrial said on Wednesday that the national tax collection system remains flawed and has not been reformed to expand the tax base or bring potential sectors into the tax net, despite years of effort.

“We are still where we stood in 2008,” Langrial remarked during his visit to the Federation of Pakistan Chambers of Commerce & Industry (FPCCI). He expressed concern that debt repayments consume the entire tax collection of a fiscal year and noted that the economy is running on borrowed money.

The FBR chief revealed that 90 per cent of Pakistan’s population does not pay taxes. Out of the 43 million households in the country, only four million are registered taxpayers. “This stark disparity, coupled with the high GST rate -- recently increased from 16 per cent to 18 per cent -- places a significant burden on those who do pay taxes,” he observed.

Langrial also admitted that the tax rates are too high and need to be reduced, particularly for corporate taxpayers. “The corporate tax rate should not exceed 25 per cent,” he insisted, adding that further tax hikes would only worsen the situation.

He was especially critical of widespread sales tax fraud in Pakistan, revealing how “flying invoices” have become a business. “I encountered an individual who openly admitted that his business revolved around issuing fraudulent invoices,” he said, adding that some people even refer to illegal activities as a business.

Langrial acknowledged corruption within the FBR, noting that retired officers have admitted to taking bribes for processing tax refunds. In legitimate cases, smaller bribes are accepted, while larger sums are demanded for fraudulent refunds, underscoring the systemic issues undermining the country’s tax collection efforts.

Speaking about Pakistan’s economic challenges, Langrial noted that recent years had been particularly difficult. However, he expressed optimism, stating that inflation is declining and the policy rate has started to drop -- key indicators of economic recovery. He highlighted economists’ predictions of further policy rate cuts in the coming months, suggesting a more stable financial environment ahead.

Despite widespread tax evasion, Langrial acknowledged the contributions of many honest individuals and businesses. “There are traders and industrialists who do not evade even a single rupee of tax,” he said. “These people ensure their children don’t benefit from illicit gains.” He also praised the dedicated officers within the FBR who work tirelessly for the country, though he lamented that their numbers are too few.

Regarding the Tajir Dost Scheme, Langrial admitted there may be design flaws but stressed that the FBR should not abandon its efforts. He also defended the recent requirement for chief financial officers (CFOs) to file affidavits verifying the accuracy of invoices. “This is all part of the sales tax law,” he said, reminding critics that penalties and arrests for fraudulent activities have long been part of the legislation. “Those who commit fraud and evade sales tax must be held accountable,” he asserted, adding that as the FBR ramps up efforts to combat fraud and promote transparency, the country is approaching a critical turning point in its economic recovery.