Daily Times

The appointment of Dr Muhammad Jahanzeb Khan, a Grade 22 officer of the Pakistan Administrative Service, belonging to the 15th Common Training Programme (CTP), on August 28, 2018 as the Chairman Federal Board of Revenue (FBR), caused resentment amongst officers of the Inland Revenue Service (IRS) and Pakistan Customs Service (PCS), especially those senior to him. The critics of Pakistan Tehreek-i-Insaf (PTI) also found the appointment against its declared policy of fighting corruption as Jahanzeb Khan was reportedly called by the National Accountability Bureau (NAB) on March 13, 2018 in regards to the scandal of 56 companies which were established by Shehbaz Sharif in violation of the law.

Notwithstanding the allegations of involvement in scandals or purported loyalty to earlier political masters, the selection process adopted for the Chairman FBR and other key posts by the PTI government has been violative of well-established rules wherein a summary of 5-6 senior eligible officers is prepared from which a competent board authority selects the best candidate on the basis of merit. Starting from selection of a junior officer in Grade 21 as Secretary to Prime Minister and now to the selection of the FBR Chairman, the PTI government demonstrated the same bent of favourtism it criticized previous governments of.

It is a matter of record that political appointments in FBR have only rendered things from bad to worse. Cronyism and incompetence has been reigning supreme in FBR. It is thus not surprising that it has earned notoriety in all areas: from the misreporting of figures to bungling of funds, from corruption to highhandedness and from inefficiency to worthlessness. Time and again, different chairmen of FBR have admitted before the Standing Committees of Parliament on Finance & Revenue that tax reforms have miserably failed.

FBR has been brutally politicized by successive governments — the high-ranking postings were made by Pakistan People’s Party and Pakistan Muslim League (Nawaz) ignoring seniority and competence and bringing persons from outside the tax cadre to “serve them”. This was confirmed in June 2011 when the then finance minister asked the Chairman FBR to announce that the budget target had been exceeded by fudging figures and he obliged the boss readily without any resistance. We all remember the infamous case of contracting to a Swiss company Cotecna for kickbacks using the FBR’s Chairman. It was a classic case of “close connections” between the political masters and Chairman FBR — this process continued with the posting of Ali Arshad Hakeem by PPP who was dismissed by the Islamabad High Court. The Sharifs also selected cronies for the important posts of Chairman FBR, secretary finance in centre and provinces etc. Now, the PTI has followed suit. It has disillusioned all those who expected that Imran Khan would observe merit strictly.

It is a sad reflection of the prevalent culture of sycophancy. The incompetent and inefficient (always-ready-to-obey-any-command-from-their-political-masters) get key posts. Such appointees in FBR hoodwink the government of the day by shifting the blame of low revenues and massive tax evasion on the traders and businessmen even though they are the real culprits. They encourage profit-hungry traders and businessmen to not pay taxes but to just grease their palms and then through immunities and amnesties get their own records white washed.

The FBR is an organisation of the corrupt, for the corrupt and by the corrupt that has been harassing the compliant taxpayers and protecting the cheats

People ask that when the appointment of the head of organisation is questionable, how can FBR be trusted with the collection of taxes, widening of the tax base and fiscal management. FBR as an organisation has not only lost its credibility and usefulness, but is also proving to be counterproductive for the very purpose for which it was established. It is a matter of great concern that top appointments are made in FBR and elsewhere flouting merit and procedure. This accentuates the already existing atmosphere of indifference and apathy within FBR’s regular cadre to enforce compliance of tax laws —especially when the very economic survival of the country is at stake.

Merely changing the chairman at FBR will not improve the tax system unless fundamental reforms are undertaken to generate revenues as per the real potential of Rs. 8 trillion is not undertaken. Will the new captain of FBR stop field formations from arbitrary taxation and negative tactics to squeeze the existing taxpayers as was done in the past by his predecessors? He will have to meet the target of Rs 4.5 trillion set for the current fiscal year. Even after receiving Rs 127 of windfall collection under amnesties, FBR has yet to clear refunds of nearly Rs 300 billion. Therefore, unless fundamental changes are made, the story of missed targets from earlier years will be repeated. The position, however, can change if comprehensive reforms are undertaken as suggested in ‘Budget, taxes and amnesty’, Daily Times, April 8, 2018.

The PTI government  must realise that transparency and fairness are the most essential attributes of any good tax administration. These cast a great impact on the taxpayers’ attitude of voluntary compliance in meeting their tax obligations. There are six elements that determine tax equity and fairness, which are missing in Pakistan. Firstly missing is horizontal equity and fairness, under which taxpayers from similar contexts pay the same tax. Second is vertical equity and fairness; in which taxes are based on the ability to pay. Thirdly, inter group equity and fairness — where no group of tax payers is favoured at the expense of another group. Compliance equity and fairness; under which all taxpayers pay what they owe in a timely manner, furthermore exchange fairness and equity where over the long run taxpayers receive appropriate value for the taxes they pay. Finally process equity and fairness is missing, under which taxpayers have a voice in the taxation system and are treated with respect by tax administrators.

Mass scale evasion of taxes is not possible without the connivance of tax administrators. Every now and then FBR recommends amnesties that confirm its uselessness as an organisation. The failure of FBR is well-established because of which, the nation has to suffer, as taxes of billions are compromised. FBR has become a tool in the hands of the corrupt, tax evaders and looters of the nation’s wealth. It is an organization of the corrupt, for the corrupt and by the corrupt that has been harassing the compliant taxpayers and protecting the cheats.

We cannot come out of prevailing fiscal mess if the present tax system and structure of FBR persist. We need tax policies that encourage investment, especially leading to greater employment opportunities. Growth-oriented tax policy should be enforced through the Policy Board envisaged in section 6 of the FBR Act, 2007 — the best should be included in it after fulfilling all the requirements mentioned therein. PTI must concentrate on sustainable higher economic growth that will automatically increase taxes. We need a simplified tax system to restore public confidence in the state. However, even a good tax system will not work if the machinery to run it is incompetent, corrupt and inefficient. The solution is not a new Chairman of FBR but a new national tax authority, comprising of professionals and not just bureaucrats.

The writer, Advocate Supreme Court, is Adjunct Faculty at LUMS. Email: ikram@huzaimaikram.com; Twitter: @drikramulhaq

Published in Daily Times, September 2^nd 2018.