Pakistan’s 2nd to None

At a top financial institution with participants after completing a project on  . A long day can be tiring but professionally rewarding if successful.

I’ve always believed and my belief keeps on strengthening that we only need to garner the abilities of our people in a just way while focusing on education.

In terms of brilliance, hardworking people and potential,  is 2nd to none

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ACCA Pakistan “Working Group on Taxation”

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Assalam O Alikum (Peace be on you),

The above is a picture from one of the events launching ACCA’s last pre-budget proposals. We’re planning for a revamp of the ACCA taxation committee and opening up to have some more competent professionals join us with their valuable contributions for the profession, country and their Alma-mater.

Below is the snapshot of a recent email from ACCA to members across Pakistan. Please feel free to share this in your circle and get in touch if you’re the right person.

Dear ACCA Members
ACCA Pakistan MNP has decided to setup a working group under the Taxation Subcommittee. The objective of this working group will be to interact with the Federal Board of Revenue initially and expand its remit to the Provincial Revenue Authorities under the leadership of Omer Zaheer Meer, FCCA, Head of Taxation Sub Committee, ACCA Pakistan and offer the following:

  • Provide regular feedback and suggestions on circulars/policy matters pertaining to taxation
  • Prepare budget proposals (initially federal and later on expand them to the provincial proposals too) and forward them to Federal and Provincial Ministries of Finance.
  • The budget proposals should be prepared in such a way that they present a holistic as well as sectoral suggestions for Pakistan’s Annual Budget
  • Discuss, deliberate and critically evaluate issues pertaining to taxation and present the critical evaluation to Federal and Provincial
  • Profile the ACCA Pakistan Members Network Panel and the subcommittee to the taxation regulators in Pakistan

This working group will consist of 3-5 members working in the taxation sector in strategic positions with considerable experience of the sector. Members with a diverse view point on taxation of different business sectors are encouraged to share their CVs and a personal statement describing their claim to merit for these position with us.

Those members who are keen to join this working group should send us their CV and personal statement by replying to this email. We will look forward to your responses by 24 February 2017.
Haroon A Jan
Regional Head of Member Affairs – MENASA
ACCA Pakistan
61-C  Main Gulberg  Lahore Pakistan

Kind Regards,

Omer Zaheer Meer,

Managing Partner,

Millennium Law & Corporate Company

Announcement of Exceptional Public Value Award by ACCA

Dear Readers,

Peace be on you!

It’s with extreme pleasure that I announce that the prestigious Exceptional Public Value Award is to be awarded to myself by Ms. Helen Brand, OBE, CEO ACCA (the largest accountancy body globally). I’ll share the details with you after receiving the award, Insha Allah.

I’m honored by this privilege and grateful to ACCA for the recognition of my:

“contributions in the field of Budget and Taxation including but not limited to

  • the drafting of Anti-Graft Legislation focused on Undisclosed Foreign Income & Assets which was later adopted by the Treasury,
  • work done on the Regional Research Study on Indirect Taxation across South Asia and UAE,
  • MOU’s with Tax Bars,
  • Collaborations with Chambers of Commerce and Tax Bars,
  • Pre & Post Budget proposals and seminars,
  • continued member education events particularly on Taxation and
  • opportunities created through R&I sessions with key employers.”

Last but not the least, I’m thankful to you all for your support and prayers particularly my parents, siblings, mentors, colleagues and friends.

acca-exceptional-public-value-award

Regards,

Omer Zaheer Meer

Privatization & Restructuring Institution

The following article has been published in Daily Nation, dated 10th August 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-08-10/page-9)

(Onlinehttp://nation.com.pk/business/10-Aug-2015/privatisation-and-restructuring-institutions)

Privatization & Restructuring Institution

Prof Dp

By: Omer Zaheer Meer

Public enterprises and organizations are those that are owned by governments. They can be governmental departments or government owned/controlled corporations. Privatization is a controversial phenomenon commonly defined as the transfer of ownership of property or businesses from a government to a privately owned entity. It is also described as the transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange.

Privatization is put forward as a solution to the economic woes of a country by a section of economists led by the likes of International Monetary Fund (IMF) and World Bank (WB). One of the main arguments for the advocates of privatization of publicly owned operations is the supposed positive change in efficiencies resulting from private ownership driven by a focus on profit maximization. While this theory has its merits, one needs to consider the local context to appraise the potential outcomes. Past experiences can always be a handful when deriving objective conclusions. Unfortunately the above argument does not seem to hold merit for Pakistan. Moreover the economic detractors of privatization argue that vital services needs to be efficiently provided by the state and the fact that privatization does not have a very bright history in third world countries.

Besides, an interesting economic phenomenon has been in the making for past few decades with public sector enterprises turning towards efficiency based corporate models while still ensuring the provision of cost-effective services/products to the local populace. They then expand into foreign territory and use their capital bases to derive profits which are funneled to grow the organization and subsidize the local population. A case in point is Etisalat, a public sector enterprise from UAE currently controlling a privatized public sector enterprise PTCL in Pakistan. This is phenomenal as it nullifies all the arguments of pro-privatization proponents in Pakistani context as a foreign public sector enterprise is now running the major section of telecommunications services in Pakistan.

Pakistan certainly has its own dynamics to consider with lessons to be learnt from past privatization experiments. The privatization of PTCL (Pakistan Telecommunications Company Limited) to the UAE based Etisalat group by the ex President Pervez Musharraf’s regime has been a disaster of sorts. Firstly the control of PTCL was transferred for a paltry stake of 26%. Moreover, PTCL which was generating profits of billions of PKR before privatization has been reporting heavy losses since despite increased tariffs and with a falling standard of customer service often complained about by masses. Moreover, the initial investment was allowed to be made in installments with a material amount ($ 800 million) still outstanding. This was perhaps a one-off badly executed privatization transaction as stated by Mr. Zubair Umar, the Chairman of Privatization Commission. So let us briefly touch upon another privatization experiment in Pakistan.

The now infamously inept KESC was also privatized with high hopes of a turnaround with substantial investments forecasted by the new private stakeholders in decaying infrastructure. Unfortunately none of the expectations have been met. The efficiency has gone down. Rather than investing in the infrastructure, the private party has sold the premium copper wires replacing them with cheap stuff resulting in increased line losses and breakdowns. Infact it has become a bigger strain on public resources then before privatization still requiring continuous rescue injections by the government. But the new private owners continue to happily remit their profits abroad.

Not only has the government of Pakistan lost revenues from the healthier dividends’ streams and resulting taxes, it has also lost by falling share prices of its remaining stake in these entities. The public has suffered a deteriorating service and higher prices. The question then is as to what could be an effective solution to deal with the loss-leading white elephants within the realms of the public sector?

In developed countries strict legislation is in place to ensure the common pitfalls of privatization are avoided, interests of all shareholders are protected and the continuation of a minimum standard of services. This needs to be done in Pakistan too in order to address the issues already facing us from past privatization ventures which effectively handed over whole of public sector enterprises (PSEs) for a paltry minority stake in ownership.

Going forward, a proper plan of action is needed for loss generating entities like PIA, Pakistan Railways, e.t.c. With a proper plan and political will there is no reason why the government cannot introduce checks and balances along with necessary incentives to induce a turnaround they expect from private investors. While some proponents of the privatization point out the previously failed attempts at turning-around of state institutions, they conveniently ignore the major reasons of failure in undue interference, political appointments and misappropriation by government officials which can be avoided.

The success stories like the successful turnaround of a loss-making steel mill into a profitable enterprise are also conveniently forgotten. The same institution is again in ruins but can revert to its’ past standards. The privatization proponents also choose to set aside the fact that if enterprises like PIA are privatized, which have the highest ratio of employees per aircraft of almost 500 compared to international standards of fewer than 150; it will still lead to layoffs and resulting backlash which can be better handled within the realms of a public sector restructuring.

Establishment of an independent and empowered restructuring institution (RI) to overhaul PSEs can make the restructuring process less resented compared to a private venture while still ensuring provision of cost-effective quality services to the masses from a revenue-generating asset of the nation. Competent professionals of utmost integrity can be placed at top positions based solely on merit to run the PSE’s with introduction of a system of appropriate checks and balances run by professionals. Performance based packages can be offered spurring motivation and ensuring excellence via improved performances.

This can be further elaborated in that all successful private businesses hire top-notch professionals at lucrative packages with performance based pays. The results are professionally run and highly profitable ventures. There is no reason why the services of similar professionals cannot be engaged by Government which can even convert PSEs into Public Corporations which while still adhering to Government regulations will be allowed to follow professionalism, efficiency and mechanics of a modern enterprise.

If for some reasons a privatization is still deemed necessary then appropriate selection of non-vital and loss making PSEs along-with stringent laws safeguarding the national interests as well as protecting the masses should be ensured. The process should be transparent and properly outlined with ground work done to attract best possible investments. This can help reduce lower efficiency by private investors, increased unemployment, inflation, loss of revenues and forced government bailouts as witnessed in the past.

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

Resolving the Banking Transactions’ Tax Crisis

The following article has been published in Daily Nation, dated 3rd August 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-08-03/page-9)

(Onlinehttp://nation.com.pk/business/03-Aug-2015/resolving-banking-transactions-tax-crisis)

Resolving the Banking Transactions’ Tax Crisis

Prof Dp

By: Omer Zaheer Meer

As discussed on these pages before the controversial decision of levying a withholding tax on all banking transactions for non-filers (0.3% till September and increasing to 0.6% thereafter) with the underlying aim of broadening the tax base has not been able to gain acceptance in the presence of serious flaws within the taxation system along-with prevalent corrupt practices. Even if one ignores the increase in the inflationary pressures in the economy and the penalization of ordinary salaried class, the reservations of traders alone are sufficient to make this highly controversial. The disagreement on this matter has now reached a dead-lock between traders and the incumbent Government. So exactly what are their reservations and how can they be possibly addressed? Is there any possible solution for the same?

First of all the withholding tax introduced is more of a transactional tax then an income tax. But more importantly the issue at hand is one of a lack of trust in the system. Not only do the traders fear to be targeted unfairly once they bring themselves in the system to avoid the transactional tax, they haven’t seen the remedial procedures effectively providing relief in an event of witch-hunting by FBR either. Many economists are of the view that introducing new taxes to compensate for FBR’s failures is simply not the answer to Pakistan’s economic and tax woes. The reasons for FBR’s failures are numerous ranging from dissatisfaction amongst FBR’s employees to structural inefficiencies in the taxation system. They’re however not the topic for today and will be discussed at another time.

For now the issue of the trust deficit particularly in the business community is discussed. Besides very high rates of both direct and indirect taxes, the harassment by FBR and blockade of due refunds are often used as tactics by FBR officials to meet their targets. This actually puts off many genuine businessmen who would otherwise like to contribute their dues to the society. Therefore they claim to resort to the alternate in doing charity and stressing that they evade getting within the ambit of the formal documentation to avoid the horrible experiences many of their fellow traders have endured in their dealings with the FBR. None of these issues are of a nature which cannot be positively addressed. Infact this writer has repeatedly proposed several structural reforms including the ones addressing these very issues.

For example the policy of volume over rates can be pursued. It’d entail reducing all the taxation rates to single digits making it economically prohibitive to evade due to the higher costs of engaging professionals as well as fulfilling the demands of the corrupt officials within the tax apparatus. The focus will be to broaden the tax base using indirect taxes for this purpose while direct taxes can be applied on a progressive basis, increasing with the income brackets. If tunnel vision can be shunned then the positive potential of this can be envisioned. Currently less than 0.5% of the population files a return. The number has declined over past four years despite all the “efforts” for broadening the tax base. If this number can be increased to several millions with a consequential increase in the tax base and tax payers, one can envision the positive impact on tax collections.

It’ll be interesting for the readers to know that the honorable finance minister Mr. Ishaq Dar himself used to be a proponent of this proposal during his days of serving the Lahore Chamber of Commerce and Industry. Surprisingly, now that he’s in a position to actually enforce this much needed reform, he’s shying away from it. Moreover the effective implementation of the relief mechanisms and laws can help assure the tax payer. The time limits for deciding the disagreements should also be enforced. For a change, the tax officials can be trained to respect the tax payer instead of treating them as an assumed criminal. Such measures can go a long way to win over the trust of the taxpayers in the system.

Even in the past negotiations between traders and Government officials, the issue of the undue nuances caused by FBR to genuine businessmen resulting in most businesses staying out of the system to avoid these troubles has been raised. Similarly promises were made with traders to review the exorbitantly high rates of withholding taxes deducted in advance. Some of these taxes are treated as non-adjustable even in case of a loss. Even those that are considered adjustable are extremely hard to recover as the FBR seems to have an unwritten rule regarding refusing even the genuine refunds to loss-making businesses when they need their cash the most. However the same FBR seems content to issue refunds to or defer recovery of tens of millions from influential parties. Such behavior doesn’t instill the trust in the business community.

The latest on this issue is the breakdown of the negotiations between Government and traders resulting in strikes been called and social media campaigns been setup. The reduced rate of 0.3% till September has also been turned down by the business community for the reasons discussed above. A successful strike was already observed with the traders threatening to go all out towards a civil disobedience. Government on the other hand has ordered investigations into the affairs of top leadership of traders.

Possible ramifications of this standoff can be damaging for the national economy and the issue needs to be resolved amicably. One possible solution can involve doing away with this transactional tax and reducing the withholding and sales tax rates immediately pending a review of other structural reforms in return for voluntary registration of a minimum number of businessmen. There are many other possible proposals to this effect too. The ball is now in Governments’ court to decide whether it is serious about introducing reforms to win over the tax payer and broaden the tax base or if it simply believes in coercive measures which may seem beneficial in meeting short-term targets but will surely cause damage in the longer-term.

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

Minimum & Banking Transactions’ Tax

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

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-07-27/page-9)

(Onlinehttp://nation.com.pk/business/27-Jul-2015/minimum-banking-transactions-tax)

Minimum & Banking Transactions’ Tax

By: Omer Zaheer Meer

With the stated aims of supporting the entrepreneurship culture, facilitating businesses and increasing the numbers within the ambit of formally documented economy, one would expect steps by policymakers to incentivize the masses to this effect. Notwithstanding several positive developments, some recent steps have actually served in contradiction of the above aims of the incumbent Government.

Before diving into the specifics let’s briefly discuss some important building blocks. First of all, most of the modern economies have moved away from been solely or greatly based upon agriculture or manufacturing to a greater focus on service sector, then be it financial, IT, educational, telecommunication or other services within this sector. Even those with a large base of agriculture or manufacturing have modernized to include service industry as a significant part of their overall GDP. It is therefore essential for a successful modern economy to promote service sector with the underlying GDP growth and employment opportunities acting as prime motivators. Similarly in a country like ours where, as per some studies, the black monies and illegal economy outweigh the documented formal one, reforms are required to incentivize people to come within the ambit of documented economy.

With the above been clarified let us move onto some extremely important issues with serious ramifications for our economy. First up a minimum tax on service companies has been levied from fiscal year 2015-16. But what does a minimum tax mean? For our tax dilettante readers, it means that the advance tax paid by service companies will not be refunded in the event of them ending up in losses at the financial year end. This is not only unjust but would have serious negative implications for the service sector growth. Moreover it also has the potential to entice this sector towards “creative accounting” to avoid paying any more taxes then the minimum they have to since they will not be getting any refunds due to them in the past in their hour of need.

This “creative accounting” argument was actually floated as an initial reason for attempting to introduce the minimum tax on service sector several years ago under pressure from international lenders. This was done in a controversial manner despite an existing section of the Income Tax Ordinance 2001 already dealing with the minimum tax on companies. The matter led to serious misgivings from the tax payers and after long heated debates the last finance bill included a proposal to restore the original position before the controversial insertion in section 153. The original position was that any tax paid in advance was adjustable against the final tax liability. Unfortunately at the last moment the policy makers again succumbed to certain pressures and instead introduced the minimum tax. In doing so the long term impact on tax net and GDP growth was ignored in favor of the short term cash accumulation to meet annual targets.

Several responsible officials have shared in private that this amendment was based on the underlying assertion that all mobile companies, a sub-sector within the service industry, were preparing falsified accounting records to avoid due tax and thereby causing losses to the national exchequer. Even if we accept the notion, this observation was based upon a sub-sector only and it was therefore inherently unjustified to “punish” an entire sector for that. Moreover this was equal to declaring that since some- murderers are able to deceive with the judicial system therefore all accused from now on would have a body part amputated as a presumed minimum punishment. Not very just, is it?

Instead an overhaul of the system with effective implementation along-with introduction of stringent penal clauses would have served the purpose more effectively. Last but not the least, even the existing audit provision, if implemented properly was sufficient to deal with the problem. We therefore propose and expect the policy makers to review this matter positively with a strategic view of expanding the GDP and broadening the tax-base rather than diminishing it. Volume over margin is the way forward for a progressive taxation regime.

Next up is perhaps the most controversial issue of the imposition of advance tax on banking transactions by non-filers. After a lot of uproar from the business community, the negotiations with finance ministry officials resulted in the concession that the levy of 0.6 percent withholding tax was reduced to 0.3 percent till end of September 2015. Any non-filers after that date would be liable to the rate of 0.6 percent again. However, a section of business community has rejected this and is planning to force a change by strikes and protests.

While the underlying aim seems fairly positive in that the non-filers are incentivized to come within the ambit of documented economy, there are certain qualifications to that. Firstly many individuals particularly salaried ones get their tax deducted at source and as such do not file income tax returns. This is despite them paying more than their due shares of taxes if all the indirect taxes on their consumption are taken into account. A lack of awareness and the bureaucratic difficulties within our taxation apparatus are the biggest reason for this trend. Secondly the lack of trust in the authorities and Governments by the business community is a big barrier.

Some of the concerns leading to the lack of trust are seemingly genuine and warrant corrective actions. A case in point is the undue relief given to influential tax payers while the ordinary one having to waste material resources in order to get their genuine rights like refunds due to them. Moreover the undue nuances caused to even genuine businessmen by certain elements within the taxation apparatus cements the belief that it’s beneficial to stay out of the system to avoid these troubles. Moreover taxing every transaction over Rs. 50,000 at 0.6%, when aggregated, takes the total cost to inexplicable levels making it attractive to avoid banking channels for those not bound to. The crux is that trying to impose a reform like taxing banking transactions without addressing the inherent limitations and problems of the taxation system may not be the most effective way to address the issue of widening the tax-net and should be re-considered.

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