The poor genuine exporters were left begging for their refunds but fraudsters made up bogus documentation and decamped with huge amounts, unpunished and unquestioned—Tahir Jahangir, Chairman, Towel Manufacturers Association of Pakistan
The Chairman of Towel Manufacturing Association in Sales Tax refunds: the fiasco unfolding [Business Recorder, December 18, 2019] has levelled serious allegations about the failure of the Federal Board of Revenue (FBR) to clear the blocked refunds of genuine exporters and accommodating the fraudsters who allegedly “made up bogus documentation” and “decamped with huge amounts”, unpunished and unquestioned”. These are vehemently refuted by FBR claiming that the new automated refund payment system is working satisfactorily.
The issue of unpaid refunds is lingering on since long. According to an ex-member FBR, “Under the income tax, the procedure is that if a refund order is issued it is invariably accompanied by a refund voucher. But on sales tax side we observe a different procedure where Refund Payment Order (RPO) is issued without refund voucher and it is upto the Finance Minister to decide when and how much amount of refund is to be released after issuance of RPO? These delaying tactics cause loss of trust of taxpayers in FBR/Government”.
The Chairman, Towel Manufacturers Association of Pakistan alleges that FBR after installing an “extremely complicated computer programme”—called ‘Fully Automated Sales Tax e-Refund (FAST)—promised to issue refunds to exporters within 72 hours but had failed to do so—in his article he has cited many instances and highlighted bottlenecks faced by applicants are discussed in Sales Tax refunds: the fiasco unfolding [Business Recorder, December 18, 2019]. The articleobserves and alleges: “All recognised systems of governance allow a full avenue for appeal to a neutral umpire. So if you are accused of a crime, civil or criminal, there is a set course of appeal to the initial verdict. Here the FBR provides you with none. The FBR is the judge, the jury and your adversary. It is their job to collect as large a volume of tax as possible from the taxpayers. Obviously, a refund to them is anathema, the last thing they wish to do. Consequently, it is in their interest to delay, reduce, and withhold refunds to exporters”.
The painful episode of blocking refunds, especially of exporters, started after Muhammad Ishaq Dar took oath of Finance Minister on June 7, 2013—till his fleeing the country on October 27, 2018 on the special aircraft of then Prime Minster Khaqan Abbasi, it was no doubt a ‘dar(k)’ era that drastically damaged the economy—on assumption of power many tried to shift the blame on the coalition Government of Pakistan Tahreek-i-Insaf (PTI). Dar used all kinds of negative methods and oppressive taxes to show 20% annual growth in tax collection to please International Monetary Fund [IMF]—they in turn gave him “good reviews” and many waivers! As soon as IMF programme was over, the foreign lenders and donors started criticising his actions and policies! This holds a warning for PTI Government as well as it is also jubilant over good reviews and getting second tranche of $452.5 million on December 19, 2019!
The PTI Government needs not be complacent and take much-desired and much-delayed reforms in all areas without any further delay. It is in our best interest to make all institutions to deliver and not destabilise political and economic environment and take any action against the law and settle the matters of citizens strictly in accordance with law/rules/regulation. Without rapid and equitable economic development and prompt dispensation of justice, we cannot progress. Every institution must concentrate on its delivery and stop encroaching upon on each other’s domain. Constitutionalism alone can endure enforcement of rule of law and across the board accountability. Selective accountability and open defiance of rule of law are anti-thesis of democracy.
The rule of law is the principle that no one is above the law, even those who enact, interpret and administer the same. Rule of law embraces at least three principles. The first principle is that the law is supreme over officials of the government as well as private individuals, and thereby preclusive of the influence of arbitrary and political power. The second principle requires the creation and maintenance of an actual order of positive laws which preserves and embodies the more general principle of normative order. The third principle requires that the relationship between the state and the individual be regulated by law.
The rule of law serves as a safeguard against tyranny, because fair, just, and impartial laws ensure that rulers do not become corrupt or despotic. Establishment of a welfare State is a cherished goal, and rule of law sustains it.Under the study of jurisprudence, the concept of ‘rule of law’ is quite complicated but in simple terms, it implies that all persons are subject to law. This is in sharp contrast to monarchy or oligarchy where the rulers are above law. So, if a commoner murders someone, he could be hanged but the king would get away by killing anyone In order for any government to exercise complete justice with all its citizens and the administrative structure truly functional, it has to enforce rule of law without discrimination. Hence, if a high court judge is caught flouting traffic rules, or if a government official is involved in taking bribe or smuggling activities, or a professional is found making public, confidential information about his clients; they should all be given exemplary punishment and must be forbidden from taking any advantage of their high profile statuses or even their connections.
When rule of law is in place, it reduces corruption, checks poverty, overcomes diseases, inculcates discipline and provides a shield to the people against all forms of injustices. For establishment of a peaceful society, rule of law is the foundation stone upon which development, good and accountable governments build themselves. As mentioned by World Justice Project Report 2017-2018(WJPR) report: “The rule of law is not just the rule of lawyers and judges: All members of society are stakeholders”. Thus rule of law requires that FBR should release all due refunds established under the law and punish those who are allegedly blocking the same and issue the bogus one as alleged in Sales Tax refunds: the fiasco unfolding [Business Recorder, December 18, 2019].
According to a report, “The IMF has once again supported the tight monetary policy stance besides emphasising upon the need to “timely and regularly” increase the electricity tariffs – the two issues that have invited a lot of criticism in Pakistan from independent policy experts and economists”.
According to a statement issued by the IMF, its Executive Board on December 19, 2019 completed the first review of Pakistan’s economic performance under the Extended Fund Facility (EFF). The completion of the review has allowed Pakistan to draw Special Drawing Rights (SDR) 328 million (about US$ 452.4 million), bringing total disbursements to SDR 1,044 million (about US$ 1,440 million). It may be remembered that IMF Executive Board approved the 39-month, SDR 4,268 million (about $6 billion at the time of approval of the arrangement, or 210 percent of quota) Extended Fund Facility (EFF) for Pakistan on July 3, 2019. At the time of approval, it was highlighted that “the EFF-supported programme will help Pakistan to reduce economic vulnerabilities and generate sustainable and balanced growth focusing on: a decisive fiscal consolidation to reduce public debt and build resilience while expanding social spending; a flexible, market-determined exchange rate to restore competitiveness and rebuild official reserves; to eliminate quasi-fiscal losses in the energy sector; and to strengthen institutions and enhance transparency”.
The IMF in none of its reviews and Press Release No. 19/264 mentioned the weakness of the FBR in clearing all outstanding refunds so that correct picture of net revenue collection is ascertained.It is strange that such an important area of fiscal mismanagement escaped the attention of the IMF experts, country head and Executive Board. If the numbers are fudged [ see details in A history of figure fudging] by overstating revenue collection—taking taking advances not due and blocked refunds of billions—how can reforms and corrective measures suggested by IMF be reliable to remedy the situation!! Convicted parliamentarian for committing contempt of court by Supreme Court, Daniyal Aziz, ex-Minister for Privatization under PML-N, once blue-eyed boy of General (retd) Pervez Musharraf, in a TV talk show in which Ishaq Dar also participated accused him of tampering with figures that led to a “fine of Rs. 9 billion to Pakistan”.
During the rule of PML-N from 2013-18, many statistical discrepancies were reported in budget documents by experts—these were in fact undesirable acts of window dressing through fudging of figures to show a healthy picture of the economy. The claim by Ishaq Dar that FBR met, rather exceeded, the targets for the fiscal year 2014-15 and 2015-16 were proved wrong. A report [Non-tax revenue: Rs. 195 billion included in taxes to claim lofty collection, Business Recorder, July 3, 2016] revealed that Rs. 195 billion collection on account of non-tax revenue (Gas Infrastructure Development Cess and Natural Gas Development Surcharge) was shown as “other taxes” to claim “higher tax collection”. These were part of non-tax revenue till 2013-14.
FBR has a distasteful history of overstating revenue collections[‘The FBR Figures’, Business Recorder, July 4, 2014] by manipulating the figures, blocking bona fide refunds[‘FBR’s refund system bleeding both ways’, The News, June 3, 2015] and taking advance payments from banks and other large taxpayers. Tax bureaucrats on the instructions of political masters inflicted shame on the country by gross misreporting of data to the IMF[‘A history of figure fudging’, The Express Tribune, July 28, 2011]. Subsequently, a commitment was made to the IMF to review fiscal data from financial year 1989-90 onwards. The data compiled for financial years 1994 to 2000 confirmed that tax revenues were inflated by billions of rupees. The tax collectors—data manipulators is a more appropriate term for them—were showing higher tax collections through fudging of figures and the nation had to pay a heavy cost for it (not only in terms of fine paid to the IMF) but further tarnishing the image of the country in the international community that nothing is transparent here. Now under the PTI Government this malpractice should be stopped immediately and correct position of unpaid refunds should not only be made public but cleared without any further delay to undo the ugly legacy of the previous regimes.
The recent and ongoing saga of blocked refunds was narrated in great detail in a report [‘Dar accused of delaying tax refunds’, The Express Tribune, June 19, 2016], prepared by the chairman of a committee constituted by Federal Tax Ombudsman (FTO) on the complaint of Pakistan Apparel Forum. The report held Ishaq Dar directly responsible for withholding bona fiderefunds of exporters and others to show higher collection figures to International Monetary Fund [IMF] and show “extraordinary performance of achieving over 20% growth in tax revenues. On publication of this report at FTO’s website, Ishaq Dar became furious. He ordered FTO to remove it immediately from its website and instructed FBR to dissociate itself from the report, which it endorsed when draft was circulated! The details of this entire bizarre saga are available in Blocked tax refunds: FTO comes under pressure, removes repot from website, The Express Tribune, July 5, 2016.
Muhammad Zubair, ex-Governor Sindh and earlier colleague of Ishaq Dar in the Cabinet as Chairman Privatisation Commission, while talking to journalists on September 27, 2017, alleged that Nawaz Sharif was cheated by Ishaq Dar. He quoted as under:
“Dar told him [Nawaz Sharif] that everything is alright in the economy”. I interrupted him [Dar] and said no, everything is not all right. Businessmen are facing hardships due to long pending tax refunds”.
In the very first full year of his third term as Prime Minister (fiscal year 2014-15), Nawaz Sharif, contrary to tall claims of his self-acclaimed economic wizard, Ishaq Dar, failed to meet the third revised target of FBR. The original target of Rs. 2810 billion was first reduced to Rs. 2691 billion and then to Rs. 2605 billion. On shortfall of over Rs. 220 billion vis-à-vis original target, FBR stalwarts received kudos from Ishaq Dar, besides bonuses!
For 2016-17, FBR also missed the revised target of Rs.3521 billion by a margin of over Rs. 200 billion—original was Rs.3621 billion. As in past years, the collection included blocked refunds of billions of rupees and advances taken from many large taxpayers. For the fiscal year 2017-18, the target assigned to FBR was Rs. Rs. 4013 billion that was later reduced to Rs. 3935 billion but it collected only Rs. 3842 billion even after blocking refunds and taking advances, not yet due!
On November 26, 2015, Ishaq Dar confessed [‘Culture of cheat’, The News, May 22, 2016] before the National Assembly’s Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization that FBR withheld refunds of Rs. 200 billion.
The target assigned to FBR for FY 2018-19 was Rs. 4435 billion, which was revised downwards twice [first to Rs. 4398 billion and then to Rs. 4150 billion].According to FBR Year Book 2018-19, FBR collected Rs. 3828.5 billion, showing negative growth of 0.4 percent. This pushed the fiscal deficit to record 8.9% of GDP despite the fact that during FY 2018-19 the refunds of Rs. 121.6 billion were paid, as compared to Rs.154.7 billion paid in FY 2017-18—see details in FBR Year Book 2018-19.
Strangely, but expectedly, till today nobody is punished for withholding genuine refunds. Since public officeholders and elected members favour FBR bosses, they also protect them from probe/audits. The cases of many legislators, including our incumbent Prime Minister, Imran Khan, were selected for audit for tax year 2016 but no proper inquiry was allegedly conducted.
Though majority of legislators declares meagre income in tax returns vis-à-vis their standard of living, yet FBR hardly, unless political victimisation is ordered by political masters, probes and imposes tax for unexplained assets/expenditure. This marriage of convenience, rather unholy alliance, leads to the culture of cheat and deceit in society, besides eroding the moral authority of FBR to collect taxes, wherever due.
FBR in the past, on the instructions of political masters, has been single handedly destroying Pakistan’s growth by anti-business actions, especially during Dar’s era. Ishaq Dar, now a proclaimed offender of the Accountability Court and suspended senator, gave free hand to tax officials to block bona fide refunds, take undue advances from large business houses, use negative taxes like raising unjust demands and freeze bank accounts for recovery. Exporters and other taxpayers, still waiting for refunds, have been denied lawful right of payments/compensation within stipulated time as alleged in Dar accused of delaying tax refunds [The Express Tribune, June 19, 2016]
Everybody knows that collection shown by FBR during the ‘Dar(k)’ era contained blocked refunds of billions, advances from government-owned corporations and amounts extorted, though not yet due. The sordid story of over-reporting of collection and overstating targets should not continue under the PTI Government as time and again the Prime Minister, Imran Khan, said that “I believe in transparency”. The Prime Minister should take note of the fact that why no punitive action has been taken till today against corrupt elements in FBR despite his firm resolve on this as well against unscrupulous businessmen as suggested in Sales Tax refunds: the fiasco unfolding[Business Recorder, December 18, 2019]: “If there are any frauds then criminal proceedings should take place—not only against the concerned applicant but also of the official who collaborates and facilitates”. A thorough probe should be ordered in the matter in the light of this article.
Never ever has FBR disclosed in its collection statements how much undisputed and established refunds remained unpaid on the closing date of the fiscal year, which must be subtracted from the gross revenue receipts to portray the correct net revenue collection. It only mentions the actual refunds issued, whereas accrued and ascertainable liability of refunds should also be taken into account to reflect the true picture of net revenue realised during a financial year. One hopes the new Chairman FBR will take note of it and reveal not only the correct position of refunds due—theta is a fundamental right of citizens to know under Article 19A of the Constitution—but also clear all of these and order probe in respect of allegations levelled in Sales Tax refunds: the fiasco unfolding [Business Recorder, December 18, 2019]!
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