Every year, the Federal Board of Revenue (FBR) as the Revenue Division of the Ministry of Finance (MoF), claims to have “exceeded” the annual target — this year the adjective “comfortably” is also added by the more loyal of the king’s draftsmen — in utter disregard of the fact that the original figure agreed with the International Monetary Fund (IMF), mentioned in the budget documents and conveyed to provinces for calculation, was revised downwards without any cogent reasons. The same thing happened in the fiscal year (FY) 2023-24 that just ended.
The original target for the FBR at the time of announcement of the budget for FY 2023-24 was fixed at Rs. 9,145 billion, which was reduced to Rs. 9,252 billion without any public debate in the National Assembly that fixed it.
The FBR in its Press release issued on June 29, 2024 claimed that it collected Rs. 9,306 billion in FY 2023-24 against the “target of Rs. 9,252 billion thereby exceeding the yearly target by a significant margin of Rs. 54 billion.” The reality was missing the original target by Rs. 166 billion.
The Revenuecracy once again hoodwinked the banker-turned Federal Minister for Finance and Revenue, Senator Muhammad Aurangzeb, as it had been doing with all the finance ministers in the past.
Another Press release of July 1, 2024 available on the website of FBR says: “…… the Finance Minister praised and congratulated the Team FBR for its exemplary performance in surpassing the revenue collection target for the financial year 2023-24 by collecting Rs. 9,311 billion.” The addition of Rs. 5 billion in reporting within one day showed the same old mechanism of hoodwinking the public, international lenders and donors as well as finance minister.
It is an irrefutable fact that despite resorting to all kinds of highhandedness, blocking of refunds and unjust withholding taxes, FBR has failed to improve tax-to-GDP ratio.
It is not understandable why FBR has yet not revealed publicly on its website, the actual amount of refunds due to the taxpayers. Before the Standing Committee of National Assembly on Finance, Revenue and Economic Affairs, the FBR’s officials admitted on July 10, 2020 that refunds of Rs. 532 billion were due from June 2014 to June 2019.
The FBR never revealed what happened to those refunds and what was the position as on June 30, 2024. FBR’s non-disclosure of unpaid refunds of billions is yet another circular debt, similar to that of many trillion in the power sector. It also confirms that FBR’s collection for many previous years was grossly over-reported by blocking bona fide refunds and taking advances of billions which were taken though not became due.
The shady affairs of reporting of collection and blocking of refunds by the FBR demands a detailed and immediate audit by the team of Auditor General of Pakistan. The incumbent finance minister must take initiative in this regard, so that the true picture emerges in view of serious allegations of underperformance and figure maneuvering on the part of FBR.
In view of above a comprehensive analysis of FBR performance for FY 2023-24 will be made once it releases the annual year book as well all the details of blocked refunds and undue advance payments are exposed. The FBR in the past used to issue data relating to collection of taxes and duties in its annual year books, with analysis highlighting vital areas of achievements, weaknesses and other disclosures to adjudge its performance. As before and since fiscal year 2019-20, even in the latest published Year Book 2022-23, there is no mention about total income tax returns received for tax years 2022, and persons registered under Sales Tax Act, 1990 until June 30, 2023.
The last time such data was officially released was in FBR Year Book 2018-19, showing a total of 2,666,256 income tax returns received for tax year 2018, till the date of finalizing the year book, out of which 43,246 were those of companies. However, in ‘Tax Directory of all Taxpayers for Tax Year 2018’ as well as in ‘Tax Directory Analysis for Tax Year 2018’, total number of income tax returns received till September 14, 2020 for tax year 2018 were shown at 2,852,349.
The incremental increase in tax received from new filers was not revealed despite repeated requests. Such non-disclosures constitute flagrant violation of Article 19A of the Constitution, which says: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law.” The data for tax year 2024 on these two accounts is also not made public till to date.
Pakistani citizens are not seeking any information about any particular taxpayer, which is protected under section 216 of the Income Tax Ordinance, 2001, but they only want to know the contribution of all income tax return filers for each tax year.
The citizens also want analysis of contribution made by all categories of taxpayers, namely companies, association of persons (AOPs) and individuals (salaried, non-salaried) as well as sector-wise tax paid by those engaged in business and profession. This data is not available in Year Book 2022-23 for the consecutive five years now.
As regards much-trumpeted extraordinary performance claiming, “FY2022-23 would be remembered as a historic year as federal tax collection scaled a new height by surpassing Rs. 7 trillion mark for the first time in the history of the country,” it is pertinent to mention that out of total collection of income tax of Rs. 3,086 billion, the contribution of 10 types of withholding taxes alone was Rs. 1,762.5 billion.
The remaining withholding provisions fetched Rs. 111.75 billion (total Rs. 1,874.2 billion). Advance tax paid was Rs. 945.3 billion and with returns Rs. 122 billion. FBR collected only Rs. 144 billion (arrears of Rs. 2.8 billion and out of current demand Rs. 114.4 billion), which is only 4.66% of total income tax collection. The argument that the staff of Inland Revenue Service (IRS) contributes by monitoring of withholding taxes is fallacious as proved below.
Bifurcation of major contributors under withholding tax regime is: contracts (Rs. 390.8 billion), bank interest & securities (Rs. 320 billion), imports (Rs 290.3 billion), salaries (Rs. 264.3 billion), electricity (Rs. 95 billion), telephone (Rs 87.2 billion), dividend (Rs. 85.3 billion), Advance tax on purchase and transfer of immovable property (Rs. 84.7 billion), exports (Rs. 73.8 billion) and advance tax on sale of immovable properties (Rs. 70.3 billion)—Table 8, Page 11 of Revenue Division Year Book 2022-23. It is pertinent to mention that no bifurcation is given for as many as over 40 withholding tax provisions prevalent during the relevant year.
The disastrous outcome of mindless and costly borrowing, both external and internal, resulting in a 45 percent increase in debt servicing in just one year.
The FBR claims that withholding taxes need strict monitoring for which it made efforts. If this is true then defaulting withholding tax agents must have been penalised and demand should have reflected in either current or arrears collection, or through a separate note, which is totally missing. It is still open for FBR to post on its website the details of any such actions as well as publicise, the number of income tax returns and sales tax registered persons, category-wise, as on June 30, 2023 and 2024.
It must also disclose the quantum of due refunds as on June 30, 2024. In the Revenue Division Year Book 2022-23 only refunds actually paid of Rs. 17.3 billion are mentioned which were Rs. 54.2 billion in FY 2021-22 showing negative growth of 68%. Had all due refunds under all taxes been subtracted from collection of FBR, the total amount would not have been more than Rs. 6.5 trillion negating the claim of crossing the Rs. 7 trillion mark in FY 2022-23. Figures provided in the Year Book 2022-23 confirm an overwhelming reliance on indirect taxation, even under the garb of income tax through presumptive/minimum tax regimes on a number of transactions, without evaluating its impact on the economy and life of the poor masses.
It is an irrefutable fact that despite resorting to all kinds of highhandedness, blocking of refunds and unjust withholding taxes, FBR has failed to improve tax-to-GDP ratio. It was pathetically low at 8.5% for FBR collection. FBR was not be able to collect even Rs. 7,400 billion—the original target for fiscal year 2022-23 was Rs. 7,460 billion, which was later revised upward to Rs. 7640 billion after the mini-budget levying additional taxes of Rs. 170 billion through Finance (Supplementary) Act, 2023. In Year Book 2022-23, FBR has admitted being “marginally short by 0.5% of the revised target” of Rs. 7,200 billion, whereas in the budget for FY 2022-23, it was fixed at Rs. 7,460 billion.
FBR collected Rs. 7.16 trillion in FY 2023. After transferring Rs. 4.22 trillion to provinces under 7th National Finance Commission (NFC) Award, the net available to federal government from tax (Rs.7.169 trillion) and non-tax revenue (Rs. 1.710 trillion) was Rs. 4.65 trillion, whereas debt servicing alone was Rs. 5.07 trillion for domestic liabilities and Rs. 760 billion for foreign liabilities. In FY 2023, all provinces together collected only Rs. 649.56 billion of taxes and Rs. 165.88 billion as non-tax revenues.
In FY 2022-23, FBR collected only Rs. 3,086 billion as income tax showing dismal share of hardly 4% in the GDP. It could have been 6% of GDP had agricultural income tax from the rich absentee landlords, also been collected as highlighted by Dr. Muhammad Ashfaq, previous Chairman FBR. He rightly asked provinces to plug evasion by the rich landlords, but his efforts remained unsuccessful as he was removed with change of regime.
Similarly, in sales tax, federal excise and custom duties, due to rampant corruption and inefficiencies, the total collection was below original targets, what to speak of actual potential of Rs. 6000 billion. In FY 2022-23, FBR collected Rs. 2591 billion under the head sales tax against the original target of Rs. 3,076 billion, Rs 370 billion under federal excise duty and Rs. 932 billion under custom duties again original targets of Rs. 402 and Rs. 953 billion respectively.
The alliance government of the Pakistan Democratic Movement (PDM), during its 16 months rule after assuming power on April 10, 2022, pushed the country towards a fiscal fiasco. It is evident from the Summary of Consolidated Federal and Provincial Fiscal Operations, 2022-23, released by MoF for FY 2023. The most startling fact: total federal and provincial revenues (tax and non-tax) of Rs. 9.63 trillion against a total expenditure of Rs. 16.15 trillion.
Net revenues available with federal government after transfer to provinces were short by Rs. 1.18 trillion to meet even a single head of expense, debt servicing of Rs. 5.83 trillion, meaning thereby that the entire defense spending of Rs. 1.59 trillion was met through expensive borrowed funds. It was more than a fiscal fiasco—a distressful alarming signal, posing a huge threat to economic viability and national security of the state.
The disastrous outcome of mindless and costly borrowings, both external and internal, resulted in 45 percent increase in debt servicing in just one year. According to the Summary, in FY 2023, total expenditure on debt servicing was Rs. 5,831 billion against Rs. 3,182 billion in FY 2022. Resultantly, the fiscal deficit, the mother of all ills, reached Rs 6.5 trillion or 7.7 percent of the GDP (Rs. 84.658 trillion).
The same situation prevails in the just ended FY 2023-24. The amount allocated for debt servicing was Rs. 7,302 billion, but actual expense went to Rs. 8,251 billion. It pushed the fiscal deficit to Rs. 8,388 billion. So it hardly matters that if the just started fiscal year if the federal government meets both tax and non-tax revenue, the fiscal deficit will reach Rs. 9,000 billion though in the budget it is shown at Rs. 8,500 billion.
At the end of fiscal year 2025, debt servicing budgeted at Rs. 9,775 billion would certainly be revised upward, and FBR’s target fixed at Rs. 12,370 billion downward. This is the well-known, long-practiced and well-designed modus operandi of the crafty bureaucrats sitting in the MoF to understate the expenditure and overstate the tax revenues. If this is called prudent budget making, then what can be a more apt example of perpetual insanity!