Why revenue shortfall in Pakistan?
An efficient and transparent refund system builds the confidence of the taxpayers on the revenue collection agency
BY SYED IHTISHAM BUKHARI
The current government criticizes the performance of its revenue collection agency for its failure to meet the assigned revenue targets however, no voice till date is heard about the why and how part of the problem. In the following paragraphs, the why part of the issue would be discussed.
- Advances from taxpayers
This aspect of the taxation is covered under section 147 of the Income Tax Ordinance, 2001 where the tax collector under the law is required to collect advance tax from its tax payers for the quarter. Due to low tax base and high expectations from the government this provision of law is being misused by the tax collectors where they beg the taxpayers for advances for future tax years. This is done in Income Tax, Sales Tax and Federal Excise Duty. Why the prime minister of Pakistan doesn’t bother to ask PRAL to get hold of such advances-list and fix the delinquent collectors.
- Advances from banks
This aspect of the taxation is also covered under section 147 of the Income Tax Ordinance, 2001 where the tax collector under the law is required to collect advance tax from its tax payers for the quarter. Some collectors dealing with banking cases request the banks for advances in the month of June to be refunded in the month of July along with payment of default surcharge. Would the prime minister of Pakistan bother to ask PRAL to provide lists of cases where payment for delayed refunds were made under section 171 of the Income Tax Ordinance, 2001 to identify such collectors who hide their incompetence at the cost of state. The interest rate under section 171 is higher than the bank interest rate.
- Withholding of refunds
An efficient and transparent refund system builds the confidence of the taxpayers on the revenue collection agency. Under this scheme, the tax collectors delay the deemed or determined refunds of the taxpayer to meet their assigned revenue targets. This attitude of the collectors not only shatters the confidence of the taxpayers on the system but also entitles the taxpayer for interest on delayed refund under section 171 of the Income Tax Ordinance, 2001. Would the Prime Minister of Pakistan bother to ask PRAL about the list of such cases which one the one hand are shattering the confidence of the taxpayer and on the other hand the state has to pay interest to the taxpayers on delayed refunds under section 171.
4. Advances from withholding agents
The collectors in order to hide their inefficiency have started withholding agents like AG office, AGPR and other authorities (not taxpayers) for advance withholding taxes.
5. Concessions in exemptions
Due to increased pressure from the government, the tax collectors are inclined towards advances and hence are compelled to take a lenient view at the time of processing and issuing exemption certificates to the taxpayers resulting in loss of revenue.
6. Agreed assessments
Audit is the deterrent function of the taxation policy as under the self-assessment scheme where a person selected for audit and confronted on a genuine discrepancy is required to be made an example out of. Unfortunately, the tax collectors due to the advance culture on monthly basis cannot use this tool effectively. Resultantly, the quality of audits is compromised and the writ of the tax machinery is weakened.
7. Private practice of the tax authorities
Like earlier stated, revenue collection is the primary function of the state which needs to be performed religiously with utmost efficiency and effectiveness. Unfortunately, many officers and officials in the tax machinery are on the pay-list of the taxpayers who are responsible for filing of their tax returns, processing their refunds and exemption and any other function.
Some are paid for keeping potential taxpayers outside the tax base whereas others use their granted favors for recruiting their kith and kins in the organizations. This cancer has marred the performance of the revenue collection agency. Has the prime minister of Pakistan bothered to ask the intelligence agencies to identify such traitors and hand over their names with evidence to NAB for stern action or would he stick only to Nawaz Sharif and Asif Zardari?
The above points are enough for the why part of the problem. For the how part, the prime minister of Pakistan is requested to consult an ordinary Pakistani citizen for possible answers to the why part of the problem.
The author is a former academician, financial expert and adviser to renowned multinational companies. He can be reached at firstname.lastname@example.org