The Federal Board of Revenue (FBR) is the largest dysfunctional official body in Pakistan. The past few years have witnessed the worst kind of performance by FBR on all fronts -- revenue collection, plugging of leakages, widening of tax base, recovery of arrears, voluntary compliance, reform process, countering corruption and tax evasion etc. Despite this pathetic performance, Finance Minister, Ishaq Dar, eulogises FBR’s performance to beg for more money from International Monetary Fund (IMF).

Consequent upon the concurrence of Finance Division for creation of additional posts in Inland Revenue Service (IRS) and Pakistan Customs Service (PCS) vide FBR’s sanction letter No 13(2)S-MIR/2012 and Finance Division vide Dy. No 341-FA(FBR)2014, the cadre strength of IRS and PCS with effect from February 7, 2014 is: IRS: BPS-22, 2; BPS-21, 47; BPS-20, 170; BPS-19, 255; BPS-18, 377; BPS-17, 378--total cadre strength 1229. PCS: BPS-22, 1; BPS-21, 18; BPS-20, 64; BPS-19, 133; BPS-18,150; BPS-17, 101--total cadre strength 467. Lower cadre number is over 25,000 for IRS and PCS.

Despite this large workforce, in fiscal year 2013-14 FBR registered a shortfall of Rs. 209 billion -- against the original target of Rs. 2475 billion, it purportedly collected Rs. 2266 billion. State Bank of Pakistan from July 2013 to May 2014 showed FBRcollection at Rs. 1956 billion (http://www.sbp.org.pk/ecodata/tax.pdf). How it collected Rs. 310 billion in June 2014 alone is not a mystery. Allegedly, huge funds were taken as advance while genuine refunds of taxpayers were blocked -- Chairman FBR admitted before Senate Standing Committee in April 2014 that refunds of Rs. 97 billion were outstanding, whereas independent estimates say that they were much higher.

In 2013-14, income tax collection through efforts of officers (by creating demand) was only Rs. 80.58 billion. It was Rs. 89.4 billion in 2012-13. It exposes the efficacy of IRS as collection on demand fell to 8.7% against 11.5% in the previous year. In 2013, FBR received only 840,000 returns against 3.2 million holders of National Tax Numbers (NTNs). According to National Database and Registration Authority (NADRA) there are more than three million rich people who do not even have NTNs although they live in posh areas, have multiple bank accounts and frequently visit foreign countries. Amongst the non-filers, there were 1020 FBR’s officials, vast majority of government servants, elected representatives and even judges and generals. It is worth mentioning that in 2009 as many as 1,282,118 filed returns/statements. In other words, there has been annual decrease of 7% in filing of income tax returns. In sales tax regime, the position is equally pathetic. FBRR has about 100,000 registered taxpayers, out of which less than 30,000 pay any tax. Out of 2.5 million retailers, it has managed to register only 8,000 outlets. Yet, FBR claims to have achieved wonders and Finance Minister endorses it.

FBR has failed to perform during the last many years. For over 90% collection, it relied on withholding provisions, advance tax and voluntary payments. It has made little efforts to force the rich and mighty to file returns, which proves beyond any doubt its unproductiveness. FBR’s crumbling, inefficient and corrupt apparatus is the root cause of the present fiscal mess. Shahid Javed Burki in Provincial Rights and Responsibilities [Journal of Economics, September 2010] opines that "about 40 million out of 170 million people in Pakistan have now succeeded in keeping their living standards from falling. Of these, about 15 million have improved their economic situation in spite of the sluggish economy." FBR is not taxing these rich 15 million.

Pakistan’s tax potential at federal level alone is about Rs. 7 trillion. According to Household Integrated Economic Survey (HIES) 2011-12 conducted by Pakistan Bureau of Statistics, 5 million individuals have annual taxable income of Rs 1.5 million. If all of them file tax returns, income tax collection from them at the prevalent tax rates would be Rs. 1650 billion. If income tax collected from corporate bodies, other than non-individual taxpayers and individuals having income between Rs. 400,000 to Rs. 1,000,000 is added, the gross figure would not be less than Rs. 4500 billion--FBR collected only Rs. 903 billion in 2013-2014. Similarly, due to leakages in sales tax, federal excise and custom duties, the total collection is not more than 50% of actual potential [joint study of Andrew Young School of Policy Studies at Georgia State University and World Bank]. FBR in 2013-14 collected Rs. 1047 billion as sales tax, Rs. 169 billion as federal excise and Rs. 240 billion as customs duties. Collection under these heads should have been at least Rs 2500 billion. Target of Rs. 7 trillion is achievable provided the mighty segments are properly taxed, tax machinery is overhauled, leakages are plugged and all exemptions to the privileged classes are withdrawn.

Financial wizards and tax managers sitting in the Ministry of Finance and FBR have been persistently claiming that tax base of Pakistan is narrow and majority of the people do not pay income tax. Actually, the reality is completely opposite. The poor people of Pakistan are one of the most heavily taxed in the entire Asian region. As far as tax base is concerned, not only total taxable population but millions of those having below taxable incomes are paying income tax at source. In most of the cases, tax deducted is full and final discharge of liability; hence taxpayers do not file statements (required under section 115(4) of the Income Tax Ordinance, 2001), which has created a wrong impression that our income tax base is narrow.

Pakistanis are portrayed as a nation of tax cheats by local and international media. This is totally false. It is true that in 2013 total return filers were just 840,000 but income tax payers were at least 50 million. These include mobile users who pay 15% income tax at source, commercial electricity consumers and people earning interest on bank deposits from whom 10% mandatory withholding tax is collected irrespective of their quantum of income.

Out of total population of Pakistan, 43% are below the age of 15 years -- an overwhelming majority of which may not have taxable income. Rural labour of 40 million earns meagre income. Thus, the total income tax paying population having taxable income of Rs.400,001 can be around 20 million. FBR is getting income tax from all these as well as from many others who are not earning taxable incomes. The poor are paying not only indirect taxes but also income tax at source under various provisions of the Income Tax Ordinance, 2001 -- section 148 to 156A, section 234 to 236N. Thus in reality, the poor are over-taxed and the elites enjoy tax-exemptions, perks and benefits.

Successive governments have failed to fulfill even their basic obligation of safeguarding life and property of people, what to talk of providing basic facilities of health, education, water and civic amenities. It is high time that FBR is replaced with a dynamic National Tax Agency and a simple tax regime introduced in the country -- it would not only increase collection but also relieve people of an oppressive tax machinery.