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

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7 Financial Benefits of becoming a FILER

Image result for 7 Financial Benefits of becoming a FILER in Pak

Below are the seven (7) major financial benefits of becoming a Filer in Pakistan:

  1.  Lower rates of advance income tax deducted at source by banks (on interest/profits) and on banking transactions
  2. Savings on withholding tax deducted when registering and transferring motor-vehicles
  3. Lower rate of tax on sale/purchase of property transactions
  4. Rebates/reduction in tax on payment for goods, services and contracts
  5. Lower tax on dividend
  6. Reduced withholding tax on capital gains accrued on sale of securities
  7. Reduced rate of withholding tax on prize bond winnings and decreased rate of collection under commission and brokerage.

Convinced?

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Best quality services by top professional team of qualified lawyers, chartered and chartered certified accountants, chartered financial analysts and tax experts:

Millennium Law & Corporate Company (MLCC), 

(the pioneer ACCA practising firm in Pakistan)

Bashir Mansion, 2 Turner Road, Adjacent AG Office, Lahore

Call: 042-37242434 / 0322-4219292 (prefer text),  Email: ozmeer@mlcc.pk

 

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

R&I Session with AW Textile Mills Multan

Salam,

AllahWasaya Textile Mills is part of Maqbool group and is one of the oldest textile mills in Pakistan. I specially traveled to the historic city of Multan for an R&I session with them, where I represented ACCA. The response was phenomenal and sat a new record for ACCA in Multan.

It was a fantastic session which was highly appreciated and resulted in increased awareness of modern reporting issues for the participants. The brand recognition was enhanced with material future benefits expected to accrue for the ACCA fraternity, the profession and Pakistan, InshaAllah.

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Key ACCA Engagements with Employers – ACCA MNP Elections 2016-18

Assalam O Alikum,

I’ve done my best for ACCA fraternity and believe in generating value through excellence.

Even during these elections, I met with employers, attended and contributed to Research & Insights, conducted trainings for Members, e.t.c. as generating value for ACCA fraternity is most important for me.

Below are some of the pictures from the engagements with key employers, representing ACCA and creating opportunities for ACCA fraternity.

It is my vision and aim to build upon such historic successes for the betterment and professional development of ACCA fraternity.

This can only be possible with your vote and kind support in the ongoing MNP elections.

Please visit:  My Professional Profile, Achievements for ACCA & Manifesto  to consider me worthy of your valuable vote & kind support.

Thanks in anticipation.

Kind Regards,

Omer Zaheer Meer

(ACCA MNP Candidate Sr. No: 23)

Chairman ACCA Tax Committee at LCCI – ACCA MNP Elections 2016-18

Salam,

Below is a memorable picture from the high profile meeting with key dignitaries including Mr. Salman Shah (ex Finance Minister) and officials of LCCI.  I represented ACCA and our contributions were highly appreciated.

It is my vision and aim to build upon such historic successes for the betterment and professional development of ACCA fraternity.

This can only be possible with your vote and kind support in the ongoing MNP elections. For me, MNP is a platform to increase my positive contributions for ACCA fraternity, the profession and thereby our beloved Pakistan.

Please visit:           My Professional Profile, Achievements for ACCA & Manifesto  to consider me worthy of your valuable vote & kind support.

Thanks in anticipation.

Kind Regards,

Omer Zaheer Meer (ACCA MNP Candidate Sr. No: 23)

omerzaheermeer@hotmail.co.uk

 

Salman Shah Sb

ACCA fraternity praising & being mentored – ACCA MNP Elections 2016-18

Salam,

Please find below some of the selected emails with members expressing their gratitude, praising the ACCA training sessions conducted by me and requesting mentoring.

Many members were mentored with material contributions made to their professional developments and/or careers. It is simply not possible to share each and every email. However, some touching emails of a similar nature were shared before.

It is my vision and aim to build upon such historic successes for the betterment and professional development of ACCA fraternity.

This can only be possible with your vote and kind support in the ongoing MNP elections. For me, MNP is a platform to increase my positive contributions for ACCA fraternity, the profession and thereby our beloved Pakistan.

Please visit:           My Professional Profile, Achievements for ACCA & Manifesto  to consider me worthy of your valuable vote & kind support.

Thanks in anticipation.

Kind Regards,

Omer Zaheer Meer (ACCA MNP Candidate Sr. No: 23)

omerzaheermeer@hotmail.co.uk

From: Mirza ***g (*******@hotmail.com) You moved this message to its current location.
Sent: 08 March 2016 05:09:26
To: Omer Zaheer Meer (omerzaheermeer@hotmail.co.uk)

Dear Omer,

First of all I want to appreciate your efforts for our ACCA community, adn I want to suugest there should also be a specific webinar for sales tax on services as this is a new and very complicated area which has just recently been highlighted by SRB.

Also I have a query that if in our monthly sale tax return we pay our sale tax for a specific invoice but afterwards when we receive payment (like after 2 or 3 months) we find out that our client has with held 100% sales tax and deposited in Government treasury, then can we claim a refund or adjustment from our subsequent sale tax returns? if yes how ?

Best Regards,
Mirza **********g
CA, ACCA
_______________________________________________________
Date: Sun, 28 Feb 2016 20:53:56 +0500
Subject: Guidance required for further studies
From: ***********@gmail.com
To: ozmeer@mlcc.pk

 

Dear Sir,
Thanks a lot for the teaching of Pakistan Tax which is very beneficial for us at current work place.
Sir i need personal career advice whether i have to go for Certified Internal Auditor, USA or ICMA as the current MOU B/W ACCA & ICMAP provides as opportunity to transfer free of cost exemption of 12 exams out of 18 by paying registration fee.
As for as concerned  my previous education, i have don MBA Finance in 2007 and got ACCA membership in October, 2015 after completion of exam and practical experience with full time job working as Finance Manager.
I will be thankful to you.
Thanks with best regards,
Mudassar *******, ACCA
Manager Finance
___________________________________________________________________
Date: Mon, 29 Feb 2016 08:55:52 +0500
Subject: Suggestion after Sale tax Act 2 session
From: **********@gmail.com
To: haroon.jan@accaglobal.com
CC: ozmeer@mlcc.pk

Dear Haroon Bhai,

It was a very informative session,thanks to you,Ahmed bhai and Omer bhai and ofcourse ACCA.
Please try to arrange practical session like e-filling before SRB and PRA sessions so that we have a good command on practical as well as on theory of sale tax on goods and areas covered in sales tax act as in practical life we must have expertise in theory and more importantly on practical matters.
I hope ACCA will consider my suggestion.
Regards,
Muhammad *************a.
___________________________________________________________________
From:  shahbaz *****n (shahbaz********a@gmail.com) You moved this message to its current location.
Sent: 20 February 2016 12:18:15
To: ozmeer@mlcc.pk
Hello Sir,
I attended your last session on webinar. It was really great to be a part of it.
So i want you to guide me a bit as carrier counselor.As i mentioned there that i am a part of an SME Audit firm so how can I add more in my knowledge and practical experience being a part of it. Should I further go for any other degree and if yes then please do guide. I know my questions are a lot but i hope you would understand as a lot of burden in current market condition. You might remember me from the comment like a Hollywood Movie.
Thanks in advance for the answer.
_________________________________________________________________