FBR’s collection & unpaid refunds

The first month of the current fiscal year has brought good news for the coalition government of Pakistan Tehreek-i-Insaf (PTI) on the fiscal front. The Federal Board of Revenue claimed in a Press release of exceeding the target of Rs. 300 billion fixed for July 2020 by Rs. 57 billion. According to FBR, Inland Revenue exceeded target by Rs. 52 billion and Customs by Rs.5 billion. FBR further claimed that “to redress the hardships of the business community caused by Covid-19, an unprecedented amount of refunds to the tune of Rs.15 billion have been disbursed during July 2020, as compared to refunds of Rs.7 billion during July 2019″. This has facilitated the exporters and the industry easing off their liquidity crunch”, it claims.

In July 2020, FBR shows total customs duty collection of over Rs. 42 billion that is 6% higher than the corresponding period of 2019 “despite there was less than 1% growth in import values during this period”. The Press release says that the “higher growth in FBR’s revenues is primarily on account of better supervision and improved administrative controls despite economic conditions caused by Covid-19 during which the country mostly remained in lockdown state”. The revenue trajectory, it claims, also “beat the adverse impact of governments’ import compression policy”. FBR has assured active engagement with trade and industry “to mitigate their genuine grievances” in coming days. It reportedly also launched an “unprecedented crackdown on corruption dismissing and suspending about a dozen officers and officials only during the month of July 2020”.

The painful episode of blocking refunds, especially of exporters, started after Muhammad Ishaq Dar took oath of Finance Minister on June 7, 2013-till his fleeing the country on October 27, 2018 on the special aircraft of then Prime Minster Khaqan Abbasi

Exporters and other taxpayers, contrary to the claims of FBR, are still complaining that refunds promised before and after the June 30, 2020 have been denied till today. They validly say that refunds is their lawful right, but FBR poses as if it is doing some favour to them! The allegation by taxpayers needs a probe by Dr. Abdul Hafeez Shaikh, Adviser to Prime Minister on Finance and Revenue. He ordered the FBR on July 16, 2020 [Press Release No. 342] “to make payment of all Income Tax refunds of up to Rs. 50 million in the next couple of weeks while a clear roadmap and strategy may be adopted for the payment of remaining refunds”.

It is not understandable why FBR has yet not revealed publically on its website, the actual amount of refunds due to the taxpayers. Before the Standing Committee of National Assembly on Finance, Revenue and Economic Affairs [hereinafter “the Standing Committee”], the FBR’s officials admitted on July 10 , 2020 that refunds of Rs. 532 billion were due from June 2014 to June 2019. They did not reveal refunds due for the fiscal year 2019-20 after paying Rs.135 billion under sales tax, income tax, customs and federal excise against last year’s figure of Rs. 122 billion. In 2019-20, for the first time, an amount of Rs. 100 billion was paid in respect of long-outstanding refunds through technical supplementary grant (TSG) by the government. According to Press report, FBR’s admission of unpaid refunds of billions is yet another circular debt, similar to Rs. 2.1 trillion in the power sector. It also exposes the truth that FBR’s collection for many previous years was grossly over-reported by blocking bona fide refunds.

The factual position as admitted by FBR before the Standing Committee was that from June 2014 to June 2019, Rs. 413.5 billion of income tax, Rs. 112 billion of sales tax refunds and customs rebate of Rs. 6 billion had been outstanding. In fiscal year 2018-19, the total tax collection was Rs. 3.826 trillion and if amount of unpaid refunds of Rs. 532 billion is excluded, the net collection would be only Rs. 3.294 trillion (just 8.6% of GDP). FBR did not share tax refund claims data for fiscal year 2019-20 which if also included, the refunds due to taxpayers might be around Rs. 600 billion plus. It is also a failure of the International Monetary Fund (IMF) that it failed to detect over-reporting of revenues.

It is now confirmed that like Pakistan Muslim League (Nawaz), the coalition Government of Pakistan Tehreek-i-Insaf (PTI) has also blocked tax refunds to inflate revenue collection. FBR expected Rs. 70 billion extra revenue due to withdrawal of SRO 1125 (zero-rating for some export sectors), but its sales tax collection from them was Rs. 83.4 billion. FBR admitted that the exporters filed refund claims of Rs. 105.2 billion refund, out of which Rs. 72.2 billion were paid and the remaining Rs. 33 billion got obviously included in collection of Rs 3.99 trillion for fiscal year 2019-20 though were undisputedly payable. It even admitted that there were outstanding income tax refunds prior to 2014 but “their data was with the field formations”-not readily available for disclosure!

It is a fact that top bosses of FBR were not doing it without instructions and/or knowledge of ruling party. It cannot be believed that finance ministers or advisers on revenue were too naïve not to ascertain the fact of blocking refunds when complaints had been coming from aggrieved persons and various associations. The painful episode of blocking refunds, especially of exporters, started after Muhammad Ishaq Dar took oath of Finance Minister on June 7, 2013-till his fleeing the country on October 27, 2018 on the special aircraft of then Prime Minster Khaqan Abbasi. He used all kinds of negative methods and oppressive taxes to show 16-20% annual growth in tax collection to please IMF-they in turn gave him “good reviews” and many waivers!

The IMF in none of its reviews and Press Release No. 19/264 mentioned the weakness of FBR in clearing all outstanding refunds so that correct picture of net revenue collection could have been ascertained. It is strange that such an important area of fiscal mismanagement escaped the attention of the IMF experts, country head and Executive Board. If the numbers are fudged by overstating revenue collection-taking advances not due and blocking refunds of billions-how can reforms and corrective measures suggested by IMF and the World Bank in new programmes, believed to remedy the situation?

The sordid story of blocked refunds was narrated in detail in a report prepared by the chairman of a committee constituted by Federal Tax Ombudsman (FTO) on the complaint of Pakistan Apparel Forum on May 5, 2016. The report held Ishaq Dar directly responsible for withholding bona fide refunds of exporters and others to show “extraordinary performance of achieving over 20% growth in tax revenues. On publication of this report on FTO’s website, Ishaq Dar became furious. He ordered its immediate removal and instructed FBR to dissociate itself from the report although it endorsed the draft when it was circulated! Strangely, but expectedly, till today nobody has been punished for withholding genuine refunds. This time as well, the Standing Committee has not referred the matter to Prime Minister or his Adviser, Dr. Abdul Hafeez Shaikh, for necessary action or audit by the Auditor General of Pakistan of this morbid affair of FBR.

The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)

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