An in-depth analysis of Year Book 2017-18 of the Federal Board of Revenue (FBR) exposes the tall claims of expanding tax base, extraordinary growth in collection and improving tax-to-GDP ratio to a satisfactory level (9 per cent in FY 2013-14 to 11.2 per cent in FY 2017-18). The reality is known to all -- reporting of higher (sic) collection figures by FBR was due to over 65 withholding tax provisions and enhancement of their rates, blocked refunds of billons and advances from taxpayers.

It appears that the sordid story of figure-fudging and over-reporting of collection will continue even under the new government of Tehreek-i-Insaf (PTI) unless action is taken directly by the Supreme Court. In the past, International Monetary Fund (IMF), Standing Committees of Senate and National Assembly and Public Accounts Committee, even after confession from the FBR’s bosses of wrongdoings, failed to take any action.

FBR has been single handedly destroying Pakistan’s business climate, especially between 2013-18 when the then finance minister, Ishaq Dar, gave free hand to tax officials to block bona fide refunds, take huge advances, use negative measures like raising illegal and exorbitant demands and freezing bank accounts even before appellate orders. Exporters and other taxpayers are still waiting for refunds and the PTI government, like its predecessors, is delaying the same. Had Ishaq Dar and others concentrated on growth of 6 per cent and above, as done by China, India and Bangladesh in the region, we could have avoided the present fiscal and economic mess -- taxes are a byproduct of growth and harsh taxation only hampers expansion and discourages fresh investment and expansion of existing businesses.

The main reliance of FBR since 1991-92 has been on indirect taxes, even under the Income Tax Ordinance, 2001 that contains over 65 withholding tax provisions, many of which constitute full and final tax liability. Out of total collection under withholding provisions of Rs1047 billion in FY 2017-18, the element of full and final taxation (indirect tax in substance) was 64 per cent!

For the fiscal year, 2017-18, revenue target was Rs4013 billion that was later revised downward to Rs3935 billion. FBR collected only Rs3842 billion. It collected income tax of Rs1441 billion against the target of Rs1562 billion (deficit of Rs121 billion). Sales tax collection at Rs1491 billion against target of Rs1541 billion witnessed shortage of Rs50 billion. Shortfall of Rs26 billion was under the head Federal Excise Duty, collection was of Rs206 billion against the target of Rs232 billion. Only collection under Customs exceeded the target by Rs8 billion against the assigned target of Rs600 billion as hundreds of items were subjected to regulatory duty. The overall shortfall of Rs93 billion vis-à-vis the revised target of Rs3935 billion and that of Rs171 billion from original target pushed the fiscal deficit to a record Rs2.5 trillion as on June 30, 2018.

The total revenue collection in 2016-17 was Rs3368 billion. FBR missed the original target by a wide margin of Rs250 billion. In 2015-16, FBR, despite imposing additional taxes of Rs360 billion, allegedly blocking over Rs220 billion refunds and taking Rs30 billion as advance failed to meet the third-time revised target showing shortfall of Rs222 billion vis-à-vis original target of Rs2810 billion, which was first reduced to Rs2691 billion and then to Rs2605 billion.

FBR has a long history of overstating revenue collections by manipulating figures through blocking bona fide refunds and taking enormous advance payments from banks and other large taxpayers. Way back in 1999, ‘revenuecracy’ (term borrowed from Dr. Pervez Tahir) inflicted shame on the country by gross misreporting of data to the IMF. Subsequently, a commitment was made to the IMF to review fiscal data from financial year 1989-90 onwards.

The data compiled for financial years 1994 to 2000 confirmed that tax revenues were inflated by billions of rupees. The tax collectors -- data manipulators is a more appropriate term for them -- showed higher tax collections through fudging of figures and the nation had to pay a heavy cost for it (not only in terms of fine paid to the IMF but further tarnishing the image of the country in the international community).

The persistent manipulation of revenue collection figures by FBR is a serious, but neglected matter. Time and again independent analysts and foreign institutions have expressed their indignation over this malpractice, but the successive governments have never ordered any inquiry into the matter. Never ever has FBR disclosed in its collection statements how much undisputed and established refunds remained unpaid on the closing date of the fiscal year, which must be subtracted from the gross revenue receipts to portray the correct net revenue collection. It only mentions the actual refunds issued, whereas accrued and ascertainable liability of refunds should also be taken into account to reflect the true picture of net revenue realised during a financial year. Will Asad Umar, who claims to believe in transparency, make the facts public for 2013-18?

According to a report of Groupe Speciale Mobile (GSMA), there were 90 million unique mobile users in 2017-18 that had been paying advance adjustable income tax of 12 per cent. However, about only 1.23 million filed income tax returns till October 15, 2018 [see Table]. According to FBR’s own admission, it received only 1.39 million returns in 2017. An earlier disclosure by FBR confirms that return filers in 2016 were 1.02 million. It is pertinent to mention that in 2011 this number was 1.57 million.

Jorge Martinez-Vazquez and Musharraf Rasool Cyan in their book, ‘The Role of Taxation in Pakistan’s Revival’, mentioned at page 676 [Figure 36] that 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07. This shows that FBR has lost one million return-filers since 2007 despite prescribing higher withholding tax rates for non-filers. FBR needs to conduct a study to find out what has gone wrong after penalising non-filers (sic) who are happier to pay more by way of advance tax rather than file returns!

This year, despite spending huge money on media campaign "threatening non-filers" and extending the deadline for filing income tax returns from September 30, 2018 to November 30, 2018, the FBR until 10.10.2018 received merely 482,275 income tax returns for the tax year 2018. According to FBR, it was 170,208 more than the 312,067 returns received for tax year 2017 by the same date, "registering an impressive increase of 55 per cent". If this is an "impressive" increase then one can only lament and laugh at FBR’s performance. The position of returns filed from 2007 to 2018 is as under:

It is also shocking to note that FBR has skipped publishing Year Book for 2016-17. What are they afraid of? Why for a particular year, they want to keep secret collection figures and quantum of refunds? Obviously, it will reveal how 20 per cent plus growth was maneuvered by blocking refunds and nearly 90 per cent collection was through withholding or voluntary compliance or advances taken though not due. If the incumbent finance minister and state minister on revenue muster courage and make these figures public on official portal, the real performance of FBR would be exposed.

The writers, lawyers and authors, are

Adjunct Faculty at Lahore University of

Management Sciences (LUMS)