Iqbal the Economist & his solutions for Pakistan– Part II

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By:

Omer Zaheer Meer,

CFA (USA), CPFA (UK), FCCA (UK), ACA (ICAEW – UK), AMLE (UK)

Continuing from the last week, Allama Muhammad Iqbal, the sage of the nation, further pointed out the key problems as well as their workable solutions as outlined below:

5. Opportunity Cost

In economics the opportunity cost is the cost of the opportunity lost in order to avail another one. For example if we build a plaza on an agricultural area where we could alternatively cultivate wheat, the opportunity cost of building the plaza would be the lost production of the wheat for the foreseeable future which we could have alternatively done and made use of. This needs to properly considered in all economic decisions. It’s good to see that PM Imran Khan has taken a leaf from Iqbal’s philosophy and incorporating that within the construction bye-laws prohibiting construction on agri-lands, hence accounting for the opportunity costs regarding food safety.

6. Austerity

Pakistan is caught up in the crisis of underdevelopment in the face of vast unlimited resources. One important strategy to adopt as per Allama Iqbal is austerity, as a guiding inflexible rule to allow resources to go into economic construction. Iqbal was a great champion of this cause and recommended it time and again. This, besides other factors help in building public trust. PM Imran Khan also champions this idea to build public trust.

7. Land Reforms

Iqbal didn’t shy away from the controversial topic of land reforms either. Infact, he backed these reforms to facilitate the oppressed class of peasants. It will be a befitting tribute to the memory of Iqbal if we develop an equitable system of agriculture in which the cause of peasants is well looked after for ensuring social justice for the peasants and for making a major break-through in boosting agricultural production.

Iqbal argued for radical reforms arguing that land as a means of production should be owned by the society for the benefit of all. “al-Ardu Liliān” (“The Earth is God’s”), is a poem in Bal-i-Jibril, which sums up this idea about land ownership.

در خدایا! یہ زمیں تیری نہیں، میری نہیں! تیرے آبا کی نہیں، تیری نہیں، میری نہیں!

(To God, this land is not yours, nor mine,

Not thy ancestors’, not yours, nor mine)

” If these core elements of Iqbal’s economic philosophy are properly implemented, there is no reason why Pakistan cannot progress on the path of economic prosperity “

8. Rural Development

Iqbal also argued that the development of rural areas is at the heart of the economic and social development of a country. He analyzed that it does not only mean agricultural growth but it’s also about improv­ing of the economic and social conditions of the rural population by way of rising incomes and providing them with necessary ameni­ties like good houses, paved streets, water supply and sewerage, health services, education, roads, power, communication,’ etc.

9. Industrial Development

The cause of industrial development was very close to Iqbal’s heart. He considered the develop­ment of industries essential for mitigating the curse of unemploy­ment. On many international platforms there were talk of indigenous technology during his era, which are now wrongly associated with Mahatma Gandhi. The historical fact is that Iqbal was the author of this concept at the time. Examine the excerpt below from one of his speeches:

“We spend practically nothing on industry. And as I have said before and as many other speakers have pointed out, indus­trial development alone can save us from the curse of unemploy­ment. There is a good future for weaving industry and for shoe-making industry in this province and if we encourage these industries, I think we shall be able to save the province from unemployment, provided we protect these industries against Cawnpore and Ahmedabad.”

10. Skilled Workers

Iqbal was unequivocal on this issue. He said that Muslims must take to industry and craftsmanship. “In my eyes,” declared Iqbal, “the hands of a carpenter, rough and coarse due to the constant use of the saw, are far more attractive and useful compared to the soft and delicate hands of a scholar, which never carry more than the weight of a pen.”

11. Global Exploitation

Furthermore, Iqbal had also analyzed protective trade tariffs and global economic exploitation of weaker nations by the stronger ones. His couplet below depicts his state of mind regarding the exploitative attitude of the Western economies and his dreams for the economy of Pakistan:

دیار مغرب کے رہنے والو خدا کی بستی دکاں نہیں ہے کھرا جسے تم سمجھ رہے ہو وہ اب زر کم عیار ہوگا

(O, Residents of the West! God’s earth is not a shop;

The gold you think to be genuine, will now prove to be debased)

To sum it up, the key principles of Iqbal’s economic model are as below:

1. Having strong bond of trust between the state & citizens (core issue of Pakistan particularly in the context of the revenue collection agencies).

1. Human Capital & Human Development (which is a key with the present youth bulge in Pakistan).

1. Interest Free Business Eco-System (this warrants a detailed writeup but Akhuwat’s model is something we can begin with as a recent success story to replicate, beginning with pilot projects).

1. Poor Centered Policies (inclusive economic policies resulting in justice and peace which in turn produce a conducive business environment leading to economic upturn).

• Self-reliance which is the core of Iqbal’s philosophy and economic model.

If these core elements of Iqbal’s economic philosophy are properly implemented, there is no reason why Pakistan cannot progress on the path of economic prosperity. How can that be done and where to begin with are the concluding areas we’ll discuss in the last part of this series.

The writer is a leading economist and experienced tax expert who holds five top professional finance, investment and accountancy qualifications CFA (USA), CPFA (UK), FCCA (UK), CA (ICAEW, UK) & Anti-Money Laundering Specialization along-with substantial international exposure and represents Pakistan on Global Tax Forum while sitting on the boards of several think-tanks. His profile can be accessed at: https://omerzaheermeer.wordpress.com/about

Avail the Amnesty & Sleep Peacefully!

By:

Omer Zaheer Meer,

CFA (USA), CPFA (UK), FCCA (UK), ACA (ICAEW – UK), AMLE (UK)

Links of Published Versions of Article:

• Website Version Link
• Print Version Link Page 8

The PM’s Counsel:

In a pre-recorded message released on social media and elsewhere, the Prime Minister Imran Khan, while addressing the nation said that only 1% out of the 220 million Pakistanis bear the burden of taxes. He painfully shared that the nation is suffering, as many are not fulfilling their lawful duties and paying their due share to the State. PM Imran Khan also shared that the institutions now have information and are constantly getting more, implying that they have also developed the mechanism to identify and followup the tax evaders. The PM concluded by saying that this is the last chance to avail the recently launched tax amnesty till 30^th June 2019 and sleep peacefully while also contributing to your nation. The spirit of the message is right.

Changing Times:

The times are surely changing for the taxation landscape in Pakistan with transnational cooperation from organizations such as OECD (Organisation for Economic Co-operation and Development), newer laws being enacted such as the Benami Act and the technology shaping the data-driven focus of the tax machinery.

What used to happen in the past was that either people used to connive with some corrupt officials or simply stay out of the tax net willfully to avoid full disclosure of their actual wealth, sales, expenses, e.t.c., while accumulating assets in their own, their family or trusted or controllable third party’s names. While this was very common, some people would simply behave in a similar manner due to ignorance of the laws and the resulting implications. This used to result in both the tax evasion as well as mis-declarations with often the use of benami transactions. The FBR, unfortunately, neither had the capacity nor the information to detect and/or take any penal action. Hence there was not much to worry for such people and they believed it was easier and perhaps “better” to continue with such practices. These notions stand to fail now.

Possible Nightmares:

Imagine this. You bought a good expensive property for your son or daughter in a posh area, perhaps Bahria Town Karachi or DHA Lahore. One day, you get the news that this same property led to the arrest of your beloved kid and the confiscation of the property. How would you feel?

Or alternatively imagine your father being arrested in front of you for not being able to justify the money trail of your hard earned empire. Or that loyal servant of yours being taken away for holding a benami for you while the property is getting confiscated, atleast partially. Nightmares? Yes. But the good news is that you can save yourself from all these and other troubling possibilities at a fraction of the cost that you may have to incur otherwise in such instances.

So it is only logical to avail the “Tax Amnesty” to both serve your interests as well as those of the country and be able to sleep peacefully as the PM told us.

Information, Capacity & Technology :

Pakistan is already receiving information courtesy of the OECD collaborations about the foreign properties, bank accounts and other assets of the Pakistani residents. Multiple FBR Chairmen in the past, have also claimed to have database of three to four million people without an NTN (national tax number) but enjoying a lavish life style with multiple foreign trips and/or assets in their name. As if this wasn’t sufficient, FBR has over time acquired the data as a result of the withholding tax regime. Last but not the least, the coordination between FBR, NADRA, FIA, e.t.c. is bound to make life difficult for the willful tax evaders as well as the ignorant culprits once the relevant drive is started.

Political Will & Penalty Provisions:

Chairman FBR has already shared his intention to launch a drive to catch tax evaders and mis-declarants post amnesty deadline of 30^th June 2019. State Minister for Revenue, Mr. Hammad Azhar had shared about the integration of various databases which will certainly be used for such a drive. This is also supported by the fact that due to the filer/non-filer differential taxation regime and the withholding regime a lot of the data regarding immovable properties and other assets is already received by the FBR. It’s not like the past when the Federal Board of Revenue struggled for the data.

To make matters more “interesting” for tax evaders, the FBR issued the Benami Transactions (Prohibition) Rules 2019 on 11^th March 2019. With this, the Benami Transactions (Prohibition) Act 2017, came into force.

The practice of holding benami property — moveable or immoveable — plays a significant role in enabling tax evasion, money laundering and terror financing.

This law entails strict punishments for persons entering into benami transactions. Any person found guilty of the offence will be punishable with rigorous imprisonment of at least one year, which may extend to seven years, and a fine of up to 25 per cent of the fair market value of the property. The Income Tax Ordinance 2001, already contains severe punishments for mis-declarations and/or tax fraud which can range from heavy penalties to prosecution.

The Misconceptions:

A common misconception is that paying taxes and then buying a benami assets would be fine. Not paying taxes is one offence and holding a benami asset is another offence.

Another wrong notion held by many is that if you’re not earning taxable income or if your tax is already been deducted you do not need to hold an NTN or file your tax returns. They’re both wrong.

You have to get an NTN and file your return even if you don’t have a taxable income but own immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory or even own a motor vehicle having engine capacity above 1000 CC or even have a  commercial or industrial connection of electricity where the amount of annual bill exceeds rupees 500,000.

There are thousands of property owners in each of the major housing societies such as DHA, Bahria Town and many other private ones in the major urban centers. How many of them have declared their affairs and even those who have, how many of them have the proper paper trail? All of them would be liable to punitive action under the above laws.

Your Last Chance:

Keeping in view of the above facts, the pressures on the national exchequer, the international and local collaborations and technological tools to use data analytics and the will of the Government to enforce the law, all these indicate that it is in the best interests of those who either because of being unaware of the law or even willfully, were in breach of the laws, should take this “golden” opportunity to avail the “Tax Amnesty” offered by the Asset Declaration Ordinance, 2019 whereby they can “whiten” their wealth, undeclared sales, expenses and/or the benami assets for as little as 1.5% only. Compare this to the potential tax and penalty costs which can be as much as 25% – 50% of the property value alongwith upto seven (7) years of rigorous imprisonment. So it is only logical to avail the “Tax Amnesty” to both serve your interests as well as those of the country and be able to sleep peacefully as the PM told us.

Technical Overview of the Amnesty: https://omerzaheermeer.wordpress.com/2019/05/19/pti-govts-tax-amnesty-past-facts-and-the-path-forward/

The writer is a leading economist and tax expert who holds five top professional finance, investment and accountancy qualifications CFA (USA), CPFA (UK), FCCA (UK), CA (ICAEW, UK) & Anti-Money Laundering Specialization along-with substantial experience and represents Pakistan on Global Tax Forum while sitting on the boards of several think-tanks. His profile can be accessed at: https://omerzaheermeer.wordpress.com/about

To learn more about the amnesty or obtain professional advise:
http://www.mlcc.pk
Call: 042-37242434 / 042-37242612
Email: ozmeer@mlcc.pk

Technocrats Crises in PTI Government: Problems & Solutions

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Technocrats Crises in PTI Government:

Problems & Solutions

 By:

Omer Zaheer Meer

CFA (USA), CPFA (UK), FCCA (UK), ACA (ICAEW – UK), AMLE (UK)

Prelude:

The economy of Pakistan is in a quagmire with many naysayers painting a doomsday scenario. They’d like you to believe that rock bottom has been hit and there’s no way out. But that’s not true. The change promised by Prime Minister Imran Khan is very much deliverable. His famous and often quoted claim of a 100% increase in taxation revenues is practical and achievable. The solutions are there, out-of-box solutions which “Status  Quo” advisors & bureaucrats would never be able to conceive and/or want to implement. Read on to know more about it.

The fortune and the misfortune:

PM Imran Khan is very lucky as he has a repute of being extremely honest, hardworking and well-meaning. Even his political opponents admit this in private and try to criticize him by attacking his currently deputed team(s). It is a strange predicament for the reasons outlined below.

PTI is also very fortunate political party as it has accumulated the finest of talented Pakistanis including lot of able and proven technocrats. These are the same people who used to stay away from even casting their votes let alone getting indulged in politics. But to his credit, PM Imran Khan changed their way of thinking and made them believe in change. To appreciate the magnitude of this blessing, just realize this that even Zulifqar Ali Bhutto or our great Quaid e Azam did not have as many talented people at their disposal. They had to make do with whatever was available. Our father of the nation himself termed the people he had in his team as mostly “khote sikke”.

There is however a problem. There is no bridge between the PM and the talented people in PTI with the same fire in their hearts as him and the same faith in his vision and leadership as he do.

During its opposition years, the PTI established a shadow cabinet by the name of “National Policy Council”. It had different teams, each headed by a top technocrat to work on the challenges for specific key ministries

Nearer the Church, farther from God:

While, PM Imran Khan is working tirelessly to make things happen and for this looking everywhere to bring in people with technical expertise, for some unknown reasons, the same is overlooked within his party. The insiders within PTI circles confide that the appointments being made are largely based on groupings sans any merits with people having no technical expertise been nominated on highly technical positions in contradiction to the PM’s own vision.

Non-technocrat political workers can and should be accommodated in thousands of non-technical positions. The technical positions however should be left for the technical members of PTI for these positions not only demand highly specialized skill sets but will also determine the outcome and legacy of PM Imran Khan’s government.

There should be a mechanism to identify and link the technocrats within PTI with the leadership in a non-partisan manner. Perhaps, some neutral technocrat within PTI would be best suited for this endeavor to avoid groupings and factions impacting the process.

The three keys to success:

There are three key requisites for success in achieving the PM’s dream of reforms. Normally the discussions about reforms and particularly the keenly discussed topic of reforming the revenue authorities and infrastructure, focuses on competency of key personnel, which is certainly important. What’s missing though, are couple of other equally vital bits.  They’re:

• party affiliation so there is belief in the vision of the PM and
• out of box thinking of a doer

The Enigmatic Resemblance:

There’s an uncanny resemblance between the untapped Pakistan with all the gifts of the nature, be it gold, copper, oil, coal, e.t.c. or the unexplored potential of tourism and PTI as a political party filled with all these untapped gifted professionals waiting to be utilized for the good of the country. This resemblance is enigmatic.

Like the symbols, the cures of the diseases are also similar. PTI, just like Pakistan, needs to explore its untapped resources of great minds of technocrats within.

The Reworked Bhutto Solution:

Despite all his ills and issues, Bhutto is normally billed as a genius; some even call him an evil genius for that matter. Irrespective of which side of the divide you are, one thing is for sure that the man knew politics and ground realities of South Asia.

Isn’t it astounding that almost four decades after his demise, he’s still alive in the hearts of millions despite all that unruly and disastrous stuff that has been done in his name, more so in Sindh than elsewhere? What is the magic about him then? Well there are a few. We’ll be discussing briefly the one concerning the topic at hand.

Bhutto famously appointed PPP workers at all key positions claiming that as people voted for his party to implement the agenda, only those loyal to that agenda can help achieve that. He questioned the loyalty and “merits” of the bureaucracy, e.t.c. He did go overboard to the extreme of appointing people solely on the basis of this criterion, leading to often incompetent or illiterate persons on key positions. Still, lessons derived from this can be used to put in motion the “reworked Bhutto solution”.

PTI’s Technocrats:

The solutions should simply involve using a mechanism to identify top quality technocrats within PTI and appointing them at key positions to implement PM Imran Khan’s vision. Care must be taken to ensure that technical competence, relevant experience, out of box thinking, knowledge of the local workings and a proven track record are there. It is vital that the processes be built and run by able technocrats within PTI and not those bound to oblige their groups sans merit.

FBR’s new Chairman:

Just this week, the new Chairman of FBR was announced and notified amid much hue and cry. Mr. Zaidi, a respected Chartered Accountant having no known previous affiliation with PTI and an ex Cabinet Member of the Caretaker Sindh Government setup primarily nominated by the PPP, was the choice. This speaks volume about the problem we’ve been discussing.

The idea was that someone “neutral” and “competent” from the private sector must be tried, having already tried both customs and income tax group officials as well as bureaucrats from other segments, without anyone delivering the “success” and “reforms” desired. However it resulted in two major issues.

The first problem stems from the manner in which this was executed. It’s hard to imagine how nobody was able to point out the famous “Ali Arshad Hakeem” case and take the then incumbent Chairman FBR as well as the board members into confidence before the announcement.

PM Imran Khan, being his bold and confident self, did the best possible to salvage a dire situation.

More importantly, this perfectly showcases the issue of being “nearer the church, farther from God”. The appointment practically meant that PTI felt it did not have anyone of a caliber matching Mr. Zaidi let alone be better. With all due regards to Mr. Zaidi, that is not the case and this is why PTI needs to get its house in order.

PTI National Policy Council Revenue Team:

During its opposition years, PTI established as shadow cabinet by the name of “National Policy Council”. It had different teams, each headed by a top technocrat to work on the challenges for specific key ministries. I was honored to Chair the “Revenue Team”.

Link of National Policy Council Notification

As Chairman of this team, I should disclose that PTI had a full fledge Revenue team working on reforms agenda which continuously and successfully assisted the leadership for several years including during the tough period of being in opposition. The work involved besides other areas, identifying both the major issues and their solutions concerning our taxation framework. Some of the proposals were even shared with other countries in a similar state of affairs as Pakistan at Global forums and these were hugely appreciated. This untapped treasure of PTI should be utilized and implemented. The details of such proposals shall be shared in my future write-ups so keep watching this space.

 Omer Zaheer Meer is a leading economist and tax expert who holds five top professional finance, investment and accountancy qualifications including anti-money laundering specialization along-with substantial experience and represents Pakistan on Global Tax Forum. His profile can be accessed at: https://omerzaheermeer.wordpress.com/about

 

Speaker and Panelist at Historic & Inaugural Annual Dinner & Conference at MTBA

• Represented ACCA at the prestigious, historical & inaugural event as Chair ACCA Taxation Committee.
• Made a keynote presentation and participation in a panel discussion at Multan Tax Bar Association
• Topic:  Blockchain, Cryptocurrencies, AI, Big-Data, e.t.c. & the Challenges for Modern Accountants, Regulators & Tax Practitioners

• Furthered the relationship built with the 3rd largest Tax Bar in Pakistan

• ACCA recognized and appreciated as Tax Knowledge Partner
• Presentation greatly appreciated by all including FBR Official, Office Bearers of almost a dozen bars, participants, the host bar, e.t.c.

• Offered to conduct CPDs for ICAP members by senior-most ICAP member at MTBA in collaboration with ACCA.
• Outstanding feedback & offers for collaboration
• Increased local foot-print for ACCA
• ACCA established as a forward-thinking and tax-expert body
• Brand visibility & recognition as knowledge partner for ACCA
• Increased opportunities for Accountants particularly ACCA fraternity

Please feel free to interact and share your kind feedback:

Email:             ozmeer@mlcc.pk

OZM’s Channel

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Building the Future – Contributing to the Society & Profession

Mr. Meer at one of the top Universities of the Country, at the conclusion of the semester for MBA Finance. He also guided them with important professional and career advisory, sacrificing his weekends for several months.

Outstanding feedback with smiles all around. He has been requested by the CR to continue for the next semester  along-with praise from the HOP & Director.

He shared:

” Glad to have delivered knowledge, skills & expertise for them to contribute in building a better Pakistan & World Insha’Allah!”

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The Moments – Exceptional Public Value Award (ACCA)

The exact moments of Mr. Omer Zaheer Meer receiving the prestigious “Exceptional Public Value Award”, granted by ACCA, the largest global accountancy body, in recognition of his outstanding services for the profession and fraternity.

OZM’s Introduction

Ms. Helen Brand, the CEO of ACCA specially flew in from UK and bestowed the honor herself. Mr. Haroon Jan, the Regional Head of Members Affairs is seen accompanying Ms. Brand while Mr. Hammad Azim, the Country Head of Marketing is himself making the announcement.

A proud moment for global accountancy profession, particularly for the ACCA fraternity as well as for Pakistan!

Please feel free to interact and share your kind feedback:

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Session on Taxation with “Think Ahead with ACCA”

Below is another session on “Taxation” with “Think Ahead with ACCA”.

Honored to be back again on the platform, after doing the record-breaking inaugural program on #CPEC with #ACCA, the largest global accountancy body.

Hope this delivers value.

Please feel free to interact and share your kind feedback:

Email:             ozmeer@mlcc.pk

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Taxation Trends in Pak in the Need for Reforms

The following write-up was published in the Jan-Mar 2018 Quarterly Edition of “Policy Insights”, the largest global accountancy body ACCA’s regional publication covering MENASA

Link: ACCA’s Policy Insights’ Published Link

Link: Main Page

Fiscal Reform: Taxation Trends in Pak in the Need for Reforms

By: Omer Zaheer Meer

Taxation laws are set of laws to derive revenues for the Government to function & service the citizens with the aim of improving their quality of life while continuously improving the facilities and infrastructures provided. Pakistan has a complex taxation system with a focus on indirect taxes with over 70 different taxes. This has led to several sets of laws dealing with specific taxation areas. Below are some major issues highlighted in need for major fiscal reforms:

• Extremely Low Numbers of Income Tax Returns Filers:

From approximately 1.32 million income tax returns filers in tax year 2016 to fewer than 1.3 million as per last available data in 2017 is an area of major concern. In a country of over 220 million, this amounts to just 0.6% of the total population.

• Undocumented, Black economy:

This builds up from the above issue of low return filers. A larger proportion of the economy, some estimates put the number close to 100% of the GDP. This by any standard is massive and a point of major concern.

• Taxation Complexities and Ease of Doing Business:

As mentioned above, Pakistan has a very complex tax system and the recently released data by the World Bank has placed the country on a ranking of 147 out of 190. The complex, non-harmonized and multi-layered laws in operations not only make it more expensive but also time-consuming for the businesses.

• Harmonization Issues:

The issue of lack of harmonization among various laws increased many-fold post the devolution of Sales Tax on Services regulation and administration to the provinces and each Province setting up its own Revenue Authority for the same. In an era, when countries are agreeing to facilitating arrangements on the likes of European Economic Area, making borders irrelevant in terms of economic activities, Pakistani businesses are facing the traditional challenges while expanding their businesses in other provinces within the same country.

• High Costs of taxation:

In addition to having one of the most complex taxation systems in the world, Pakistan also has high taxation rates compared to other countries in the region. Furthermore the taxation rates are also several times that of the cost of tax avoidance in the country, making it an attractive proposition for some businesses to keep operating beyond the radar of the legal economy. Moreover, the highly complex nature of the taxation regimes also translates into further costs for taxpayers in terms of the time and administration required to ensure compliance.

• Structural Issues:

The structural issues including confusing and highly subjective laws, focus on indirect taxes, the improvable systems, mal-practices, singular focus on revenue collection, harassment of the existing taxpayers rather than using the same resources to focus on expanding the tax base and a general ill-perception have all contributed to the current state of affairs and needs to be reformed if the situation is to improve.

• Conclusion:

The above issues are requiring serious efforts to address the critical issues concerning the taxpayers particularly the businesses in the country. With CPEC and its associated possibilities materializing, now is a good time to ensure these reforms are put to action to achieve the full potential of not only the existing economy but also the developments accruing. We’ll discuss the possible proposals for reforms in the next issue. Till then, we leave our readers to ponder over these issues.

 

The writer is a leading economist who is also a qualified chartered certified accountant, chartered financial analyst and anti-money laundering expert. He’s sits on the Global Tax Forum of ACCA and is the sitting Chairman Liaison Committee of LTBA and ACCA’s Taxation Committee in Pakistan. He can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Recognising our regular contributors… Nayeema Bashar receives a certificate of appreciation and Omer Zaheer Meer wins Pakistan’s national Member Advocacy Award.

 

Inefficiencies failing the Tax Apparatus in Pakistan

The following write-up was published in the Oct-Dec 2017 Quarterly Edition of “Policy Insights”, the largest accountancy body ACCA’s regional publication covering MENASA

Link: ACCA’s Policy Insights’ Published Link

Link: Main Page

Inefficiencies failing the Tax Apparatus in Pakistan

(by failing the genuine Taxpayers)

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.

During the last budgetary season, 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 that perspective.

Currently there are approximately 1,210,000 active income tax return filers as per the FBR directory issued in August 2017, out of a population of roughly 218 million in Pakistan. This is a meager 0.55% of the total population. A huge proportion of these filers, file NIL returns is another topic. On the other hand every Pakistani is paying indirect taxes on whatever they consume. The evident lack of trust of the taxpayers 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 in the country. However the areas where FBR can and should play a very effective role are not in the best of states either.

Considering the tiny tax base it was only natural for FBR to attempt to broaden it. However the way they went about it, has been unprofessional to say the least while messing up a good endeavor big time. 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 converting the CNIC into National Tax Numbers (NTN) and Sales Tax Registration Numbers (STRN) for broadening the tax base have been falling on deaf ears for almost a decade now.

To underline the vast difference in the workings of FBR and similar bodies in developed countries, a personal experience is hereby shared with the readers to illustrate the significant gulf between 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 genuine tax-payers in Pakistan who are ridiculed and abused for even minor genuine tax affairs. 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. 

About author:

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

Who Needs to file Income Tax Return?

You need to file your annual Income Tax Return in Pakistan if you fall within the ambit of any of the following:

1.   Registered Taxpayers (NTN holders)
2.   Those charged tax in tax years 2015, 2016
3.   Welfare Institutions or NPOs (defined in ITO 2001)
4.   Annual (non-business) income of PKR 400,000 or more
5.   Annual business income of PKR 300,000 or more
6.   All companies with financial (accounts) closure of before 31st December 2016
7.   Owners of 250 sq yards  or more land or flat of any size within    Cantt/Municipal/ICT jurisdiction
8.   Owners of 500 sq yards  or more land (outside Cantt/Municipal/ICT jurisdiction)
9.   Flat Owners of 2000 sq ft or more covered area
10.   Owners of vehicles over 1000cc
11.   Anyone sent notice(s) to file return

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