The Federal Board of Revenue (FBR) evaluates its performance in terms of 11 to 14 per cent growth rate and takes great pride in it. The finance minister also extends his approval and endorsement for this feat! Awards and bonuses are given every year to the FBR officers by the government, in addition to double salaries, for not meeting even the many time downwardly revised targets. They are rewarded for inefficiency, not tapping the real tax potential and failure in improving tax filing facilities for which every year date is to be extended.

The government wants more and more people to file tax returns, but the IT system of FBR discourages new filers as elaborated in the following message sent to us:

"If you are a new taxpayer (INDIVIDUAL), you cannot generate challan and pay tax.

1) Assuming that you are a new taxpayer and an INDIVIDUAL, you register under IRIS registration module. Your CNIC becomes your tax registration number.

2) At present the new IRIS tax return module does not generate bank compatible challan and as such FBR/PRAL has directed that challan be generated under the old portal/system

3) Old system/portal requires NTN (8 digits) for generating a challan which is not available under new registration as CNIC number becomes tax registration number (CNIC becomes tax registration number -- 13 digits).

So how can a new taxpayer INDIVIDUAL become a taxpayer?"

It has been highlighted in these columns repeatedly how growth of 11 per cent has been achieved by blocking refunds, taking advances and imposing exorbitant indirect taxes. The latest example is levy of 50 per cent sales tax on high diesel oil from October 1, 2015. Even kerosene, the poor man’s fuel, is now taxed at 30 per cent. The major portion of the FBR collection comes from import-based taxes, exorbitant sales tax on petroleum products and withholding of money at source from people who even do not have taxable income.

Fortunately, the FBR itself admits failure in improving tax-to-GDP ratio despite imposing all kinds of irrational taxes and blocking refunds. The real tax potential of Rs8 trillion can only be tapped by broadening tax-base. There is a consensus between official and independent quarters that Pakistan needs to strive hard to become at par with many developing countries in achieving tax-to-GDP ratio of 15 per cent (presently it is dismally low at 9.5 per cent).

Some radical changes like reduction in exorbitant sales tax rate, equitable tax base and simpler and fairer tax procedures are required to encourage investments and savings. The present government has failed to do so. It is high time that it re-prioritises its tax goals to improve tax-to-GDP ratio, attains better compliance and collections, coupled with rapid industrial and business growth.

It is tragic that till today the government has showed least interest to tax undocumented economy and benami transactions. The mighty sections of society are engaged in these transactions and the FBR is totally helpless. Multinational companies through abusive transfer pricing every year avoid billions of rupees tax, but the FBR, instead of recovering the same, gives them awards for "excellent performance".

The biggest challenge is how to counter massive sales tax evasion coupled with non-reporting of income in Pakistan. This government has no plan to tackle the issue of broadening tax base on priority basis. People should be given tax benefit/incentive which will help expand tax base, improve documentation and better collection of taxes without any hue and cry from any segment of society.

A well-thought-for scheme is required that should not only check leakages in tax collection, but also encourage people to file their income tax and sale tax returns. The twin goals of expanding tax base and combating tax evasion should be attained simultaneously. The present massive evasion in customs, income tax and sales tax can only be tackled through implementing Tax Intelligence System (TIS) which is capable of recording, storing and cross-matching all inflows and outflows.

The evasion of sales tax can be countered by giving incentive to public that they will get prizes through computer draws if they send copy of sales tax invoice to the FBR. Such schemes introduced by the Indian state of Kerala have already been successfully implemented in Taiwan, Turkey and Venezuela.

The government of Kerala introduced 5 per cent sales tax for all retail sales with incentive to both the shopkeepers and buyers. The shopkeepers get 10 per cent refund of tax collected/paid to the government and the buyers get VAT coupon of Rs5 for every purchase of Rs100. Every week a draw is held and coupons-holders get prizes. This scheme has boosted retail sales of shopkeepers who are willing to get registered with the government. There has been tremendous increase in government revenues with the introduction of this scheme. We suggested this scheme way back in 2007, but the FBR has not bothered to consider it till today. Perhaps some vested interest in the FBR wants to keep the system of sales tax complex so that refund mafia keeps on flourishing.

The state must remember that if taxation is viewed as being unfair or favouring some chosen ones, it remains counter productive in the long run. Special efforts and rational policies are needed to restructure the tax system and restore public confidence in the tax officials. Even a good tax system will not work if negative mindset of the tax official persists. There is an immediate need to improve both the system and the human fabric that controls it. The tax system must provide:

- Rule of law and predictability of the authority to tax.

- Principles of proportionality, efficiency, effectiveness, flexibility, continuity, reciprocity, fairness and equity.

- Lowering of tax rates and harmonisation at federal and provincial levels.

- No double taxation or intentional non-taxation.

- Non-discrimination.

- Strict anti-tax evasion rules.

The FBR, instead of performing its prime duty of collecting revenues wherever due, is busy in constituting committees to resolve tax disputes arising due to its own idiosyncrasies and myopic approach to get taxes through impractical and oppressive withholding provisions. These issues relate to tax legislation and policy, which is the exclusive domain of the Parliament. Unfortunately, members of the Parliament are least bothered to discuss these vital areas in the House.

The income tax law, Income Tax Ordinance, 2001, was a work of a military dictator as was the case with the earlier one as well -- Income Tax Ordinance, 1979. Our Parliament is not even inclined to enact a single Tax Act that deals with personal taxation fairly and justly. In this scenario, it is understandable why the FBR has become de facto tax legislator. The root cause of problem is the FBR’s unwillingness to do what is its duty and indulgence in activities that fall outside its mandate/domain. For this, however, the main fault/responsibility lies with the Parliament that has surrendered its powers to the FBR!

In the past, a loan of $100 million for tax reforms was taken without the approval of Parliament and according to news another one is under consideration. The FBR has assumed the role of loan-negotiator for reforms (sic), legislator and policymaker, which is highly lamentable.

The FBR should be an autonomous body insulated from outside political, financial and administrative pressures, but in no way it should assume the role of law and policymaker, which under the Constitution is sole prerogative of people of Pakistan through their democratically-elected representatives. The Parliament should enact laws through democratic process, rationale and acceptable tax codes after taking input from all the stakeholders and experts in the field. This alone can help broaden tax base and improve tax-to-GDP ratio in the country.

Closed-door bureaucratic actions, without any meaningful consultative process involving stakeholders, are paving way for tax revolt. It is high time that Parliament should step in and restore the confidence of taxpayers in the system.