There doesn’t exist a will to correct the revenue system

“As a result (of) serious flaws in the policy and administrative aspects, there has been substantial accumulation of untaxed wealth,” Chairman Federal Board of Revenue (FBR) Syed Shabbar Zaidi said in a letter to the Prime Minister Imran Khan.

[the_ad id=”31605”]It seems these flaws have been intentionally created, as despite abundant evidence, no action was ever taken to right the wrongs.
The country has been struggling to broaden the tax base with what the FBR chairman said only one percent of the people carrying the burden of the entire state. Despite all efforts and punitive taxation, less than two million people – out of 220 million population – have so far been encouraged to file returns.

Businessmen said the informal economy has outgrown the formal economy due to presumptive tax scheme that encourages mispricing, widely known as under-invoicing, in foreign trade. The Pakistan Business Council, representing at least 78 private sector businesses in a report estimated $5 billion of under-invoicing in a year, while the value of smuggled goods entering the country is way more.
The Green Channel facility alone causing revenue loss to the tune of hundreds of billions to the exchequer.
Even multi national companies have been caught misusing the facility. Officials believe the Green Channel facility should be discontinued.

Green channel facility is widely being misused as high value and high tariff goods are cleared through mis-declaration; similarly high tariff and high value goods of transshipment cargo and Afghan Transit cargo  are replaced with low value and low tariff goods during transit; and a large quantity of smuggled goods find their way from the neighboring countries.

Some are of the view that policies were very well designed and implemented, but not for the good of country’s exchequer, economy and financial system.
The FBR chief was critical of the tax collection’s reliance on indirect taxes. “Pakistan’s tax collection system generates less than 10 percent of GDP. Even that collection is made in form of indirect taxes, not being real income,” he said. “This system is not workable and it represents a serious economic threat for the country.”
Officials opine Sales Tax should be separated from Inland Revenue and made a separate directorate, which would help collection and control evasion as well as bogus refunds.

A seasoned tax expert Zaidi is a firm believer of the documentation of the economy, reiterating his resolve to bring untaxed sector into the mainstream through various measures, including assets declaration scheme and data gathering. The cash-strapped government has decided to launch movement for increasing tax collections equitably on all the taxable income. It is acquiring data of economic transactions from third parties, including banks, excise and taxation departments and other offices to net tax evaders.

The Inland Revenue Intelligence and Investigation has been quite inefficient, as despite reports from Financial Monitoring Unit (FMU) regarding tax evasion and money laundering by big names including Siraj KAssim Teli, S.M Muneer, Mirza Ikhtiyar Baig, Mehmood Trunkwala and several others, no action was initiated against the accused.

Analysts said that Shabbar Zaidi has been an advocate of taxing agriculture income, and if he is able to tax agriculture income, it would be a step in the right direction.

Apart from systemic flaw in the system, there are several moral and ethical grey areas in the system.
Nepotism, corruption, inefficiency and groupings across the entire system have made it a task next to impossible to straighten the things, wherein trade bodies have become such a mafia that their wrongdoings and tax evasion are outrightly ignored.
Bureaucracy, is always reluctant to take action against corruption within its ranks, rather they protect their own.
Government has not been able to touch any of these issues so far.

 

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