Is FBR’s incompetence hurting economy? (by failing genuine Taxpayers)

The following article has been published in Daily Nation, dated 27^th April 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-04-27/page-9)

(Online: http://nation.com.pk/business/27-Apr-2015/fbr-s-incompetence-hurting-economy)

FBR’s incompetence hurting economy

By: Omer Zaheer Meer

Federal Board of Revenue (FBR) is a semi-autonomous federal institution that is responsible for auditing, enforcing and collecting revenue for the government of Pakistan. It’s one of the most critical components of the revenue collection apparatus in Pakistan. As such it is supposed to be the pinnacle of professionalism, discipline and support to tax payers. Whether this is really the case shall be examined in this write-up. About couple of weeks ago, Chairman FBR invited this writer, while representing ACCA (UK) and LTBA at a historic pre-budget seminar that was organized with the collaboration of ICAP, ICMAP, ACCA, LTBA, PTBA, LCCI and several other Tax Bars, to send him proposals about the issues in and reforms for FBR. Below is a brief overview from this perspective.

Currently there are approximately 800,000 active income taxpayers out of a population of roughly 200 million in Pakistan. This is a meager 0.4% of the total population. On the other hand every Pakistani is paying indirect taxes on whatever they consume. The lack of trust of the taxpayer on the system and the resulting regressive taxation policies are a big hindrance in the attainment of an optimal taxation system. We’ve often discussed the problems with the taxation policies in Pakistan and proposed practical solutions. Frankly speaking there is only so much FBR can do in this regard since the policies are often driven by the IMF, World Bank and/or the political interests of the rulers. However the areas where FBR can and should play a very effective role are not in the best of states either and that is simply unfortunate.

Considering the tiny tax base it was only natural for FBR to attempt to broaden it. However the way they went about it is unprofessional to say the least while messing up a good endeavor big time. Recently notices claiming no existing tax registration based on “economic activities”, usually citing vehicle purchases were sent out to masses. Sounds positive? Hang on, what if it’s shared with you that many of those receiving these notices were not only tax payers already registered but paying millions in Income Taxes annually? This exemplifies a total lack of coordination within the systems and functions of FBR, which is unfortunately becoming a norm of late. Missing out on the records already held by FBR simply reinforces the misconceptions amongst the tax payers that FBR is out to bother already registered tax payers instead of acting as a facilitator and initiating genuine drives to catch tax evaders.

What’s tragic is that while on one hand such steps are undertaken citing the need to broaden the tax base but on the other hand proposals with huge potential to broaden the tax base such as bringing agricultural income and other exempt sections within the tax net as well as allowing use of CNIC as National Tax Numbers (NTN) and Sales Tax Registration Numbers (STRN) have been falling on deaf ears for almost a decade now. Of late, there has been news that CNIC may finally be allowed as NTN. If done, this will be a step in the right direction.

To underline the vast difference in the workings of FBR and similar bodies in developed countries, Let me share a personal experience with the readers to illustrate the significant gulf in the international standards and the ones practiced in our beloved country. While working in UK, I needed to change my tax code. For ease of understanding you can say it was like claiming a tax refund and I was not even a British national. It took me one phone call to UK’s HMRC (Her Majesty’s Revenue and Customs) during my office lunch hour to get it done by the end of the lunch. Yes, just in less than an hour. Now compare it to the experience of a genuine tax payer in Pakistan who is ridiculed and abused for even genuine works. Presumptive and advance taxes are collected but when it is time to issue refunds in line with the law, actual due refunds are held for months and even years despite completion of all legalities and verification. What is worst is that in most cases the FBR officials verbally accept the cases as genuine but claim that due to the pressure to meet revenue collection targets they are unable to follow the law and deliver the tax payer their due right.

The problem manifests from the nepotism and non-professional attitudes of some officers who treat tax-payers with utmost contempt instead of the dignity they deserve. Un-realistic targets setup by higher-ups then further aggravates the matters with coercive, non coordinated and even illegal measures used by certain sections within FBR. The widespread corruption within the department further worsens the matters.

It’d be reasonable to point out that although PRAL (Pakistan Revenue Automation (Pvt) Ltd) does mess up things at times, many of its’ positive endeavors were blocked for fears of eradicating corruption using different pretexts by certain sections of FBR. For example, PRAL once finalized a completely automated system of issuing refunds to tax payers with even an online payment instrument. Naturally there was a huge hue and cry. The project was dumped and the corrupt manual practices continue to date.

Now as if all this was not enough, even the laws governing the whole taxation system are made mockery of within FBR by several officers undermining the good work and efforts undertaken by their more professional colleagues. Just ask any genuine tax payer or tax practitioner about the treatment meted out to them by most FBR officials and you’d be shocked. Due to limited space, this topic will have to be continued in future write-ups.

As for now, perhaps the policy makers and senior FBR officials should consider this dire situation seriously to rectify all the serious problems within FBR. If they fail to do so, the next time they complain about low proportion of tax payers in Pakistan as compared to UK or other developed countries, they should realize that they only have themselves to blame.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Yemen Conflict: Potential Economic Catalyst for Pak

The following article has been published in Daily Nation, dated 06^th April 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-04-06/page-9 )

(Online: http://nation.com.pk/business/06-Apr-2015/yemen-conflict-potential-economic-catalyst-for-pak )

Yemen Conflict: Potential Economic Catalyst for Pak

By: Omer Zaheer Meer

Strategic decisions by modern states are based on either some principles, agreements, vested national interests or a combination of the above mentioned. A confusion and lack of clarity often results in ruining of opportunities which could otherwise turnaround the situation of a nation. By now, you’d have most likely heard about the conflict in Yemen, a regional dominance affair portrayed as a Shia-Sunni sectarian conflict by the script writers of the new world order for their own vested interests. While a lot has been written on the Yemen conflict in the past few days, a focus on economic prospects of the potential decisions has been somewhat lacking. We’ll address it in this write-up.

Pakistan currently has a vital economic dependency on Kingdom of Saudi Arabia (KSA) led Gulf coalition. The aid provide during sanctions and the $ 1.5 billion “gift” to Pakistan during current Government just last year maybe one-offs but the continuous provision of oil on “deferred payment” and employment opportunities for millions of Pakistanis in KSA and the Gulf region are of a permanent nature helping sustain Pakistan’s economy. Similarly, Pakistan share important economic ties with United Arab Emirate (UAE) whose companies often invest in Pakistan, albeit of extremely favorable terms in semi-Government or Government owned enterprises. Furthermore Pakistan has recently executed an agreement to import LNG from Qatar to meet its energy needs. The Gulf region is amongst major export destinations of Pakistani products. Annual bilateral trade is in billions of $. In economic terms there is an unfavorable trade imbalance in the trade ties mainly due to the import of oil by Pakistan. Furthermore, there is a convergence on security interests between Pakistan and most of the Gulf countries baring the issues with UAE regarding conflict of interests re Gawadar port as outlined below.

On the other hand, while there are just a few thousands Pakistani employed in Iran (fifteen to twenty thousands), the strategic position of it being a neighbor of Pakistan has serious implications for nation defence and thereby resultant impact on defence spending and national budget. While the past has glorious examples of Pak-Iran collaboration particularly during the 1965 war with India, it is an unfortunate fact that due to the non-convergence of economic and regional security interests, Iran has lately been in partnership with Pakistan’s arch rival India. The process exacerbated due to the divergence of interests in Afghanistan and peaked with the launch of the Gawadar project which directly threatened Iran’s vital “Chahbahar” port just like it threatened the prospects of UAE ports more importantly Dubai. The result has been direct economic costs for Pakistan due to delays in making port operational due to law and order situation supported by foreign interests as well as increased defence spending further straining the national resources.

Keeping in view of the above, perhaps it is high time that the strategic decision makers in Pakistan list the vital national interests that can be secured from both KSA led Gulf region as well as Iran as well as to what extent it can offer its co-operation in return depending on existing agreements. It is vital that we think realistically respecting the support and co-operation we’ve received from our allies over the years but sans undue emotions. USA has done the services expected of Pakistan for years at extremely lucrative terms; it would therefore not be unfair or unethical for Pakistan to pursue the betterment of its inhabitants while supporting its allies.

Below are some proposals in regarding what Pakistan can offer considering its own issues and limitations:

• Pakistan should focus on its ability play the role of an effective mediator to address the concerns of both Iran and KSA just like it did to bring China and USA closer back in the 1970’s.
• Deploy air support and commanders to lead Gulf forces within their borders (particularly KSA) to ensure effective defence.
• Deploying its own forces within KSA to protect its borders from outside attacks.
• As a last resort conduct targeted air-strikes against local militia on formal request from the Yemen Government and KSA led Gulf coalition on the principle of supporting democratically elected government.

What Pakistan can achieve economically in return may include the following:

• Assurances from both Iran and UAE to stop stirring up trouble in Balochistan resulting in a quicker start of Gawadar project as well as lower spending on counter-terrorism there.
• Membership of important bodies including GCC with economic implications.
• Removal of tariffs on Pakistani imports in their countries, with preferential treatment.
• Attractive deals to secure reliable LNG, LPG, oil, e.t.c. at cheap rates to ensure Pakistan’s growing energy needs are met effectively. Depending on some key factors Pakistan can secure even free supplies for a long period.
• Offering special nationality packages to Pakistanis working in the countries involved, which can positively influence the foreign exchange reserves of the country.
• Writing-off of Pakistan’s debts due towards GCC countries.
• Paying off Pakistan’s other external debts.

This is yet another historic opportunity for Pakistan and it should not be squandered like many in the past. The demands listed above are all very realistic and possible considering the vital role expected of and the possible costs for Pakistan. They’re also much less then what had been taken by the USA for similar services in the past. So if Pakistan is to play the most important role for one of the richest regions in the world, it may as well get due recognition and rewards. After all the law of the nature is such that even brothers working in brothers’ businesses must get rewarded for their work. And what’s better if the rewards are sufficient for one brother while less then what the other was paying to outsiders.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, qualified fellow accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk