Those are the contours of our taxation woes. It won’t be solved by wishing away the FBR. A concerted and serious efforts will have to be made starting with political will of the PM and some sense of civic duty of the Parliament. It will take some out of box solutions and PM and FM need to consult with honest tax and revenue collectors, hire consultants and introduce and implement a well announced and transparent Reward and Punishment regime. It may be kept in mind that all who do not pay IT are not thieves and evaders; the process is too taxing (pun not intended) for them, they don’t understand the IT regime and may even be illiterate. It is beyond their competency and expertise to do so, e.g. the small poultry seller or cigarette or laundry shop in local markets. It may also be kept in mind that those who can cheat, will cheat as relevant government functionary is too inefficient and/or corrupt to get them, thus a system may be devised whereby it is in their interest to pay taxes voluntarily and make it more meaningful than to pay bribes.
The following examples are not assumed to be prefect but simply given as an example of making the tax system friendly and effective. Let us take the case of wholesalers, traders and retailers spread all over all kind of markets in Pakistan. Even if the laundry guy wanted to pay IT and GST, he can’t as he does not have expertise, he cannot hire an expensive IT & Accounts expert and he would rather focus on his core activity. Is there any way we can make him pay IT and due GST? Yes, if we standardize an amount for him and he buys that amount certificate and displays it in his or her shop and his IT for that year will be deemed final. Let us grade our market into simple, no more than 4 slabs, like elite urban market, average urban marker, low yield market and rural markets. Similarly let us grade their business by size, say, sq. ft or number of employees or product dealt with, 1,2,3. Thus we have 12 slabs in all. The Government issued criterion should be simple for them to understand which if the 12 Pre-paid IT and Pre-adjusted GST Voucher he needs to purchase and display. It is beyond FBR to check if a shop is not displaying the prepaid tax voucher. Government may encourage whistle blowing and offer 50% of the heavy penalty it will impose on such defaulters.
FBR role should be restricted to what is enshrined in the Rules of Business: collection of revenue and management of Customs and Inland revenue service groups
Similarly, for IT of rich persons, returns filed by them may be accepted. However, a link may be created between IT declared and eligibility for obtaining and setting limit for bank loans. Today, a person paying only Rs 2 lac as IT takes bank loans of Billions. The Government may set the ratio of maximum loan to some multiples of tax paid and set a limit on loan for new or nontax payers per CNIC. This must be done through an interconnected banking shared data managed by SBP.
Similarly, a fixed IT for each profession ( and GST where applicable) by specific criterion may be fixed and they may buy the Tax voucher. This will for example allow a doctor to focus on his core activity of caring for his patient, free him from hassle of accounting and tax preparation and relieve him from clutches of tax people. He would need to buy such a Voucher and display it at the cost of whistle blowers exposing them. The idea is to make payment of IT easy, non-payment an evil to be reported by citizens who will be motivated and to heavily penalize non payers as a deterrent for others.
The rates of taxes may also be reduced for industry. It would be good to bring maximum units into the tax net by lowering the tax rate and make the black marketer that it is not very profitable to be outside the net and that coming within the net have advantages. The increase in volume will more than offset the lowering of rates.
All exemptions in IT may be removed. PM must make agricultural income taxable if he is to establish any credibility. All arguments against are meaningless in a sense that only Income will be taxed and if there is no income, there won’t be a tax. The PM may make it more amenable to them by allowing a higher income thresh-hold for IT in the first 3 years and then unify it with all sectors in next 3 years.
The problem with FBR is that it has been distracted away from its core activity and today focuses on management of import-cum export procedures, like DTRE, temporary importation for exports, calculating Input Output for customs and other duties refund on refunds , which has nothing to do with collection of revenues , rationalization of tariff and getting involved in Finance Bill during Budget Process and getting their proposals hidden in the Finance Bill approved and legislated. All this not only distracts them from their core activity of revenue collection but also harms national policies and economic development by giving FBR authority over issues which are the responsibilities of other ministries, e.g. Ministry of commerce for management of import-export process like refunds, DTRE, making easy refund process for exporters through TDAP or infringing upon the industrial policies by deciding tariff themselves for Government rather than allowing Ministry of Industries or National Tariff Commission(NTC) that can truly not only rationalize tariffs but sync it to industrial cum trade policies. FBR role should be restricted to what is enshrined in the Rules of Business: collection of revenue and management of Customs and Inland revenue service groups.
Mr. Prime Minister, the FBR is not your enemy to be discarded. Fire and remove from service the corrupt and inefficient form a large juggernaut of Inland revenue and Customs officers and FBR staff to whom you pay a huge amount from the Consolidated Fund. Out of a total in place 581,240 Federal employees, 7.06% works in Inland Revenue. This service is the largest service of any occupational serviced in the Government of Pakistan in Grade 17-22 with 17% and together with Customs it accounts for 25% of all occupational group in terms of BPS 17-22. Mr. Prime Minister, it means after the civil defense, your FBR is the largest in number of all BPS 17-22 officers and around 3rd or 4th largest Federal Department after Education, Railway and perhaps even Postal services. What it means is, you do not just threaten them, you direct them, punish the non-achievers and corrupt and reward the honest, be it called FBR or otherwise with due apology to What’s in a name misquote.
Retired Additional Secretary Ministry of Commerce