The interim government on Wednesday set up yet another task force for tax reforms, as an internal assessment revealed that half of the recently identified tax gap of Rs5.6 trillion was because of weak compliance and poor enforcement of policies.
The government has notified the new task force despite the fact that similar work has already been done by the Reforms and Revenue Mobilisation Commission (RRMC). The commission has submitted its report to the authorities months ago, which remains unimplemented.
Interim Finance Minister Dr Shamshad Akhtar would be the chairperson of the task force that has been given two weeks to come up with recommendations.
Members of the task force include Dr Manzoor Ahmad, Dr Musharraf R Cyan – who has already been engaged by the government as a consultant, Amanullah Amer and Aamir Ijaz Khan.
Chief of the Army Staff General Asim Munir had asked for setting up the task force.
Other members include Khalid Mahmood, Mehmood Khalid and FBR Chairman Malik Amjed Zubair Tiwana. Ardsher Saleem Tariq, the FBR Member, will act as the secretary of the task force, who was also the secretary of RRMC.
The task force has been instructed to propose an implementation plan for separating revenue collection and tax policy. Former prime minister Imran Khan-led cabinet had decided in 2018 to separate the tax policy from the FBR but the decision was never implemented.
An internal report of the FBR revealed that compared to the tax collection of Rs7.2 trillion in the last fiscal year, there was a gap of Rs5.6 trillion. This means the FBR should have collected Rs12.8 trillion.
Importantly, the half of the recently identified gap, or Rs2.8 trillion, was because of weak compliance and recovering the sum would not require any additional revenue measures.
A tax gap of Rs3 trillion is projected on account of low sales tax collection but Rs1.3 trillion is because of weak compliance, according to the government papers.
Similarly, a Rs1.7-trillion tax gap is projected on account of income tax and a whopping Rs1.2 trillion is because of weak compliance. The tax gap on account of customs duty and excise duty is estimated at Rs800 billion and the impact of weak compliance is just Rs200 billion.
Plugging these loopholes require a strong political will and smart administrative skills instead of setting up one after another commission and task force.
The government has mandated the task force to review the FBR’s tax collection data, its performance indicators and reporting mechanisms, and identify the areas of revenue performance and potential.
It has been assigned to review the FBR’s access to the internal and third-party data and its use in tax administration and to seek proposals from relevant agencies on use of further data for enhancing collection efficiencies and lowering compliance and administrative costs.
According to the terms of reference, the task force will carry out a review of the ongoing tax reforms, their alignment with national policies and objectives, and assess implementation progress. It will examine tax evasion, smuggling, corrupt practices and other leakages and shortcomings, and propose concrete counter-measures.
The task force will identify critical structural reforms for tax administration, human resources requirement, how to redress taxpayer grievance mechanisms, incentive alignment for tax collection, facilitation and compliance patterns.
It will recommend a way forward for efficient tax collection, examine collection mechanisms for sales tax and income tax, assess import goods and online tax system, including the study of system audit reports, for proposing measures to plug loopholes.
The task force will examine tax expenditures of the government and propose a mechanism for cost-benefit analysis of any proposal for tax exemption. The interim finance minister has already recommended the immediate withdrawal of Rs1.3 trillion in tax exemptions.
The task force will make recommendations for the use of information technology to maximise tax compliance and enforcement, broaden tax base and ensure transparency and accountability.
Published in The Express Tribune, September 28th, 2023.
IHC halts Rs35b tax on banks
The Islamabad High Court (IHC) on Wednesday suspended the government’s decision to impose a windfall income tax on commercial banks for the recovery of Rs35 billion, after lawyers questioned the powers of the interim setup and the constitutionality of the move.
The court’s decision came a day before the last date for the payment of an estimated Rs35 billion tax by those commercial banks that had manipulated the value of foreign currency to make extra profits.
The Federal Board of Revenue (FBR) was betting on the Rs35 billion in revenues to achieve its monthly target of nearly Rs711 billion. It is now left with the goal of collecting over Rs100 billion more today (Thursday) to meet the monthly target, although it may achieve the five-month tax collection target of Rs3.45 trillion.
design: Ibrahim Yahya
design: Ibrahim Yahya
“The submissions (by petitioners) demonstrate not only a prima facie case but also that the ingredients of balance of convenience and irreparable loss operate in favour of the petitioner. Resultantly, the operation of the impugned statutory regulatory order shall remain suspended till the next date of hearing,” reads the short order of the court.
Eight days ago, the FBR, through SRO 1588, had imposed a 40% windfall income tax on income from foreign exchange of banking companies for the preceding two years ended on December 31, 2021, and 2022.
Advocate Supreme Court, Salman Akram Raja, pleaded before the court on behalf of his banking clients.
While the government had anticipated banks to challenge the levy, the financial institutions were finding it difficult to hire lawyers to plead their case.
The government had issued the SRO under section 99D, which the Parliament had inserted into the law in June this year. While the FBR imposed taxes on the banks to get an additional Rs35 billion out of an estimated Rs90 billion windfall income, it conveniently ignored a windfall profit of approximately Rs1.5 trillion made by exporters. The Ministry of Finance has estimated that the exporters made a windfall gain of Rs1.5 trillion due to steep currency devaluation these past few years.
The banks’ lawyers argued that section 99D (through which the federal government could determine a tax rate between 0% and 40%) was tantamount to excessive delegation of power by Parliament and in breach of Article 77 of the Constitution.
The legal team also questioned the power of the caretaker government in imposing the tax, arguing that the function of the caretaker government was only to “attend to day-to-day affairs and (it) cannot extend its authority to a fresh taxation measure.”
The legal team also argued that the SRO was also defective in that the determination of the preconditions under section 99D, namely, the economic factors that led to the windfall income as well as the quantum of the windfall income, are conspicuous by their absence in the impugned SRO.
The team further argued that by reading the SRO, there was only an underlying (but invalidated) assumption that external economic factors have actually operated and led to a windfall income but without these being spelt out in the notification, which would be expected given the letter and spirit of section 99D.
The petitioners also claimed that the charge of additional tax conflicted with entry number 47 in the Legislative List for imposing an additional tax which was not warranted.
The law requires that the notification of the windfall tax has to be placed before the National Assembly within three months –a clause that the banks have now invoked as there is no assembly in Pakistan and the next elections are scheduled for February 8th.
The lawyer argued before the court that the government assumes that the next assembly will validate its action but it is quite possible that the National Assembly does not agree to bless the notification.
If the next assembly rejects the additional tax, banks would be at a disadvantageous position, according to the petitioners.
The court did not accept the arguments of the FBR legal counsel who submitted that the legislation has to remain operative until it is declared ultra vires. The court accepted the banks’ argument that the interim relief is sought in respect of the SRO, which is an executive act and not legislation and, therefore, prima facie not covered by the judgments on the point referred to by the counsel for the FBR.
Published in The Express Tribune, November 30th, 2023.
Growers sound alarm on fertiliser crisis
Growers in Sindh have appealed to the federal and provincial governments, as well as Chief of Army Staff (COAS) General Asim Munir, to take notice and prompt action to curb hoarding, smuggling, counterfeiting, and the black market of Urea and diammonium phosphate (DAP) fertilisers in Sindh immediately; otherwise, food insecurity could ensue.
“After demanding action from the federal and provincial governments on multiple occasions, I had to write a letter [available with The Express Tribune] to the COAS to address the ineptitude of all three fertiliser companies: Fauji Fertiliser Company Limited, Engro Fertilisers Limited, and Fatima Fertiliser Company Limited. Additionally, three Sindh government departments, including Sindh Agriculture Extension, Anti-Corruption Establishment (ACE), and Revenue, are being implicated in hoarding, smuggling, counterfeiting, and the black market of fertilisers due to nepotism, favouritism, and corruption. This is agonising farmers and driving up input costs of agricultural produce,” said Ali Palh, Advocate and President of the Small Growers’ Organisation Sindh Agriculture Research Council (SARC), speaking to The Express Tribune.
He highlighted that the government’s substantial subsidies to fertiliser companies have been in vain, as poor growers are not benefiting from them, leading to an acute shortage of fertilisers in the market. “We have laws, including the Sindh Fertiliser (Control) Act 1994 and Sindh Fertiliser (Control) Rules 1999; however, they are not being implemented to benefit peasants at all,” he emphasised.
Frustrated with the caretaker government, Jawaid Junejo, Chairman of the Farmer Organisations Council Sindh, expressed concern that large farmers are being compelled to purchase fertiliser sacks at almost double rates, while small growers are unable to obtain them, even at higher rates in the market. “We are running a social media trend; those who provide fertilisers at government rates to farmers will garner votes from the people in the upcoming general elections. This is the wheat sowing season, and we are being deprived of fertilisers,” he lamented.
Sindh Chamber of Agriculture (SCA), Senior Vice President, Nabi Bux Sathio highlighted that instead of a controlled Urea price at Rs3,680 per 50kg bag, it is being sold for Rs5,000-5,500 per 50kg in the market. He pointed out that a 50kg sack of DAP, which was sold at Rs9,000 until October 30, is now being sold at Rs15,000 per 50kg bag due to wheat sowing and other Rabi season crops.
“A total of 6.5 million tonnes of Urea are being produced in the country, meeting a local demand of 6.2 million tonnes. We should have a surplus, but no action is being taken. Growers need Urea and DAP fertilisers for better yield, rapid growth of standing crops. I urged the Sindh Chief Minister during a meeting today (Wednesday) in Hyderabad to make the fertiliser portal, set up by the federal government under the Ministry of Industries and Production, public. This way, every farmer can obtain updated information about actual bags of fertilisers sent to authorised dealers in every district. I also proposed forming an agriculture advisory committee to monitor agriculture issues and fix problems through monthly meetings,” he concluded.
Published in The Express Tribune, November 30th, 2023.
Saudi Arabia wins bid for 2030 world fair
The Saudi Arabian capital of Riyadh won the right to host the Expo 2030 world fair, vote results showed on Tuesday, in another diplomatic victory for a Gulf country after last year’s soccer World Cup in Qatar.
South Korea’s port city of Busan and Rome in Italy were also in the running to host the five-yearly event that attracts millions of visitors and billions of dollars in investment.
Riyadh won 119 votes, Busan 29 and Rome 17, results from 182 members of the Paris-based Bureau International des Expositions (BIE) showed. Saudi Arabia needed two-thirds of the votes to win from the first round.
The Italian contestants were scathing in their disappointment.
“This huge result for Saudi was unexpected in those proportions,” Giampiero Massolo, head of the Italian Expo bid, told reporters. “It is no longer about the merits, but about transactions. Yesterday it was a soccer championship, tomorrow it will be the Olympics,” he added.
However, South Korean President Yoon Suk Yeol congratulated Saudi Arabia for winning the bid, calling the Gulf state “a key partner,” and adding that his nation would share the resources and experience gained to help Riyadh hold a successful event.
Riyadh had enlisted soccer star Cristiano Ronaldo, who plays for the Al-Nassr Saudi club, to convince members in a video projected before the vote. Riyadh aims to host the event between October 2030 and March 2031.
The win is the icing on the cake for de-facto ruler Crown Prince Mohammed bin Salman’s ambitious Vision 2030 programme, which aims to wean the country off its oil dependency.
Published in The Express Tribune, November 30th, 2023.
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