Prime Minister Imran Khan seems to be utterly dissatisfied with the present performance of the Federal Board of Revenue (FBR). Speaking at the 11th All-Pakistan Chambers President Conference on 7th March, 2019, he said that he may create a new tax authority if FBR fails to achieve collection targets. The tax authority has failed to meet the collection targets in the ongoing fiscal year and its performance has not been satisfactory despite multiple steps taken by the government in the last seven months. Reforming FBR is essential to meet the expenditures of the government. The Prime Minister also assured the business community that he would try his level best to fix the FBR. “If our tax collection authority does not function properly, it could lead to a security risk. No nation that relies on loans can maintain its pride and independence,” he remarked and added that FBR should be a business-friendly institution. Commenting on the current situation, the Prime Minister wondered how can it be that of the 210 million Pakistanis, only 72,000 individuals declare monthly income of Rs 200,000 or above? He also appealed to people to come under the tax net and assured them that their tax payments would be spent with great caution and not wasted. In turn, business community should tell the people that it was impossible for any country to succeed without paying their taxes. “I am ready to slash down taxes to widen the tax net but paying taxes should be considered a national duty,” the Prime Minister reiterated.
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The remarks of the Prime Minister at the All-Pakistan Chambers’ Conference, in our view, are a clear indictment of the present working of FBR and shows his growing frustration with its present performance. His remarks also do not seem to be casual or off-the-cuff as he told the Conference that he had discussions and meetings with Finance Minister Asad Umer and Advisor on Commerce Abdul Razak Dawood in this regard. The complaint is also very valid because FBR, contrary to its previous performance of a reasonable increase in tax collections almost every year, has failed to deliver this year. Between July-February, 2019, it could only collect Rs 2,328 billion and missed the target by as much as Rs 235 billion. It is also a kind of joke that out of 210 million Pakistanis, only 72,000 individuals declare monthly income of Rs 200,000 or above. The budget deficit target fixed in the mini-budget was 5.1 percent but if the present trend continues, it could reach almost 7 percent of GDP. Provincial surpluses are also not expected to reduce the overall budget deficit and the gap in revenues and expenditures of the expected size could have a lot of serious implications for the economy. Of course, the Prime Minister’s intention to replace FBR with another institution to collect taxes would not be easy to implement but there is a great need to reform the existing taxation machinery to play its due role in the economy. It has to pull its socks up and make extra efforts to ensure that the institution comes up to the expectations of the government and the potential taxpayers are brought into the tax net without any exemptions. It is also true that the total expenditures of the government, including defence and debt servicing, cannot be met without mobilising much higher levels of revenues.
However, while there is enough room for improvement in the performance of FBR, it cannot be solely blamed for the low level of revenues compared to the targets. This is particularly true for the current year. It seems that the outgoing PML (N) government had deliberately fixed overambitious tax collection targets in the FY19 budget with a view to showing the incoming government in a bad light. Also, the government of the day could change the tax policy during the course of the year which could affect the revenue targets adversely. For instance, the government imposed higher duties on imports to reduce their level and announced certain concessions in the mini-budget which were certain to reduce the overall tax collections. This year, the apex court also stopped the collection of taxes on mobile phone cards which deprived the government of a huge amount of taxes. Besides, the Prime Minister seems to have literally beseeched the business community to help his government raise taxes. This, in our view, is not the right approach. Nobody including the participants in the Conference would be prepared to pay taxes willingly or voluntarily if a proper stick is not wielded and used by the state to do the needful.
(This news/article originally appeared in Business Recorder on March 13th, 2019)