Onslaught of SROs continues!

Huzaima Bukhari & Dr. Ikramul Haq

International Monetary Fund (IMF) and other lenders must by this time have learnt that
ruling elites of Pakistan are simply incorrigible! They have demonstrated time and again
extreme apathy toards problems faced by the eaker segments of society!there is
consensus no that Pakistan is meant only for privileged classes" This apathy becomes
criminal hen the economic plight of millions is orsening ith every passing day# but
the privileged classes# instead of paying their taxes are bent upon en$oying life at the
expense of the poor and getting more and more tax benefits"
%n & %ctober '()'# according to a nespaper# *Pakistan has backtracked on its
commitment to the International Monetary Fund (IMF) that it ill not issue any ne
statutory regulatory order (+,%) for tax exemption and instead issued four +,%s to give
benefits to industrialists and exempt retailers from registration"- The report as referring
to a number of +,%s issued by the Federal .oard of ,evenue (F.,) on the direction of
Isha/ 0ar to offer tax breaks to the affluent *ho had threatened to stage a country1ide
strike"- This decision as not only contrary to the agreement signed ith IMF but
unconstitutional in vie of 2rticle 33 read ith 2rticle )4' of the 5onstitution of
Pakistan" Through these +,%s# the government bypassed the Parliament and committed
open violation of the latest dictum of +upreme 5ourt in the case of Engineer Iqbal Zafar
Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others )(6 T27 )
+"5" Pak that says8
It is ell settled proposition that levy of tax for the purpose of Federation is not
permissible except by or under the authority of 2ct of Ma$lis1e1+hoora
(Parliament)" ,eference in this behalf may be made to the case of Cyanaid
Pakistan !td" #" Colle$tor of Custos %P!& '(() SC *+),- herein it has also
been held that such legislative poers cannot be delegated to the 9xecutive
2uthorities" 2lso see .overnent of Pakistan v" /uhaad 0shraf %P!&
1++2SC 134, and 0ll Pakistan 5e6tile /ills 0sso$iations v" Provin$e of Sindh
%'((* 7!R 1+',"8 [Page 18 , Para 20]
The ma$or *concession- given through +,% as reduction in sales tax on purchases from
unregistered persons from )3: to ):! ,ate of sales tax as reduced from ;: to <: on
imports and supplies of fabrics and tax on value addition as further cut to ':"
In Memorandum of 9conomic and Financial Policies (M9FP) submitted by the PM=1>
government to the IMF for securing ?4"3 billion 9xtended Fund Facility (9FF) it as
stated that *the government has already stopped issuing any ne tax concessions or
exemptions (including customs tariffs) through +,%s except for an 2ct of Parliament"-
Issuance of +,%s on & %ctober '()< is negation of their on stance as ell as a clear
understanding given to IMF that *the government ould approve las by the end of
0ecember '(); to permanently stop issuing +,%s"- Time and again the government of
PM=1> has said that its *three1year tax base expansion plan hinges on eliminating
exemptions and concessions embedded in +,%s and in the la# as ell as on eliminating
poers of the executive to grant preferential tax treatment through +,%s"- @oever# as
actions speak louder than ords# it $ust proves ho hypocrite these rulers are and ho
others are $ustified in calling us cheats and liars"
2ccording to a Press report# *2nalysts describe the ne +,%s as a ma$or blo to the
drive aimed at broadening the tax base# hich also put a /uestion mark over the ability of
the government to sustain pressure"- It is pertinent to mention that last year only 3))#(((
people filed income tax returns hile the number of active registered sales tax payers as
belo )((#(((#- exposing the extreme inefficiency of F.,"
The report ent on to say that *like its predecessors# the PM=1> government too
increased the burden on existing taxpayers in the ne budget and the only measures that
it took to encourage people to come into the tax net ere eventually ithdran" The
preferential tax treatment is expected to cause a revenue loss of at least ,s")( billion
against governmentAs claim of less than ,s" ; billion" This loss may make it more difficult
to meet the annual tax target of ,s" '"&3; trillion" The revenue board has already missed
its first /uarter target by a ide margin"-
2ccording to an +,%# the government also ithdre a condition that had re/uired
retailers to submit their address# computerised national identity card number and national
tax number ith their ithholding statement" This ill keep retailers out of the tax net#
leaving a significant sector out of the formal economy" The same +,% reduced the
amount re/uired to be ithheld by holesalers# dealers and distributors from '(: of total
sales tax to )(: of tax" Through +,%s 6B; and 6B4 of '()<# the government removed
doCens of items from the Third +chedule of +ales Tax 2ct )BB(" .efore the omission# the
manufacturers ere bound to print price and sales tax amount on their products and
ithhold sales tax" These items ere added in the Third +chedule at the time of
announcement of budget ith estimates that ,s" 6 billion ould be collected on this
account"
The items removed from the Third +chedule include household electrical goods such as
air conditioners# refrigerators# deep freeCers# television sets# recorders# electric bulbs#
tube1lights# fans# irons# ashing machines as ell as telephone sets and household gas
appliances" %ther items deleted from the schedule ere ovens# mattresses# auto parts#
lubricant oils# tyres and tubes# storage batteries# arms and ammunition# paints# distempers#
enamels# pigments# varnishes# gums# resins# dyes# glaCe# tiles# biscuits and chocolates"

From above# it is obvious that that only have our economic managers miserably failed to
bring the country out of the prevailing economic crisis# they have even given up all
efforts to do so" They are openly violating commitments made ith international lenders
at the time of making agreements# especially ith the IMF as earlier government did in
'((6" The grim economic challenges!monstrous external and domestic debts# rising
fiscal deficit# crushing inflation# record unemployment# $ust to mention a fe!are still
persisting and assuming dangerous levels but the government is least pushed to take
concrete and urgent measures suggested by experts time and again" %n the contrary# the
government is resorting to many unise policies that may push the country toards total
economic collapse"
De have an established history of backtracking" The IMF expressed positivity in '()(
even after the government failed to agreed deadlines of introducing Ealue 2dded Tax
(E2T)8 first as ) Fuly '()( hich as later extended to %ctober '()(" The government
failed to impose E2T even in budget '()) hich obviously annoyed IMF and it
suspended any further tranche" Pakistan also failed to meet many other obligations agreed
ith IMF" 2fter F.,As figure fudging drama!brilliantly exposed by the media!our
authorities ere unable to face the IMF" This as perhaps the main reason behind the
reported decision *not to pursue the IMF programme any further"- It as simply tragic!
a heavy price that nation had to pay for F.,As follies# and the irony is that those people
are still controlling F.,!
De need economic reforms on all fronts to come out of the existing crisis" It hardly
matters hether IMF is here or not" De need economic discipline for our on survival" In
'((6# the IMF for its *generous- lending demanded imposition of E2T ith effect from )
Fuly '()(!the government after getting the E2T .ill approved from +enate abandoned
the idea for reasons best knon to it" 9ven in the Finance .ill '())# there as no mention
of introducing E2T though our Finance Minister promised IMF that E2T ould be
imposed from %ctober '()(" @e sought time from IMF for enforcing E2T and hat
happened afterards is history" This is the ay e make commitments and violate them
at the highest level ithout any remorse"
>o Isha/ 0ar has breached the agreement ith IMF by issuing concessionary +,%s
giving the message# *De are incorrigible and obstinate"- This is simply insane! %ur rulers
are plundering money from all sources!collected through taxes or obtained as loans"
2lmost every expert has pleaded that for asting borroed money# the fault lies ith
PakistanAs ruling classes and not ith the IMF or Dorld .ank" @ad economic
reforms been implemented and structural changes made# Pakistan could have improved
its financial governance# but funds ere ruthlessly s/uandered by the elite" %n the one
hand# this nation has become heavily indebted and on the other# all systems have been
further destroyed ith unabated corruption# inefficiency and incompetency"
.oth the government and experts# pleading for more taxes# should realise the fact that real
problem lies elsehere8 non1taxation of the rich and asteful spending by the rulers"
Gnder the existing ine/uitable system# the burden of taxes is less on the rich and more on
the poor" Taxes# in the nature of full and final discharge of liability# are ithheld even
from those ho have incomes belo the taxable threshold" These taxes cannot be termed
as income tax" These are transaction taxes or taxes on consumption" .eing regressive in
nature# such levies take a larger portion of income of the poor and a negligible part of
hefty incomes of the rich" These taxes make the rich richer# and the poor poorer"
%ver a period of time# our tax system has become rotten# oppressive# un$ust and target1
oriented" There is a dire need for discussing the philosophical frameork# principles of
e/uity and $ustice# hich should be the main concern of our tax policyH not mere
achieving of revenue targets" %ur tax managers are meeting budgetary targets through
oppressive taxes# shifting incidence on the poorer segments of society and exempting the
rich" They are not tapping the real tax potential that is not less than ,s" 6 trillion" The
great divide beteen the poor and the rich is expanding" F., has proved to be an
inefficient and corrupt organisation" 6(: collection is through ithholding taxes" It could
be outsourced to any reputed firm that ould bring more taxes through better
management and IT tools"
%n the one hand# e are not collecting taxes according to the constitutional principle of
Icapacity to payI and on the other# annual targets are fixed to further s/ueeCe the already
dried tax base!there is no political ill to tax the rich and mighty absentee landlords#
big property oners and those ho are engaged in asteful expenditure" ,ich absentee
landlords conveniently remain outside the tax net# hile the poor are paying )4: J+T on
even a basic commodity like salt# sold under brand names" Dhen tax as imposed on salt
in the colonial era# the visionary leaders of that time staged a revolt against such high1
handedness" .ut in the post1independence period# our rulers are playing havoc ith the
economic life of the poorest by levying exorbitant tax on salt and many other everyday
eatable commodities# besides enhancing the prices of utilities and P%= prices beyond the
capacity of the income of vast ma$ority of the population"
It is ell1established that our inept rulers and inefficient taxmen are the real culprits
responsible for our debt enslavement" For example# there as no $ustification to raise the
J+T rate to )3: in the .udget '()<1)&!at that time IMF as not even in picture" Time
and again e have highlighted the need for bringing J+T rate to a single digit of 6:
across the board ith effective enforcement# and concentrating more on reduced spending
on defence and developments# each by a third# cutting tax rates# eliminating all
exemptions and concessions# and broadening the tax net" %nce it is done# then F., must
put tax audits on a ar footing# targeting all those ho pay taxes but under1file massively
(including government servants)# and taxing them all on the true and fair market value
of their undeclared# hidden assets# at home and abroad" Then# re1visit the documentation
exercise ith a vie to catch those outside the tax net all together (this ould also help
/uantify the extent of under1filing)"
The real tax potential of tax collection of Pakistan!a cursory look at undeclared
incomeKealth ould prove it!is not less than ,s" 6 trillion LMFBRs Year Book 2012-
13# 9usiness Re$order- +eptember '3# '()<N" If e manage to collect annual tax revenue
of even ,s" & to ; trillion in the coming three years# the governmentAs reliance on
domestic and foreign loans can decrease significantly" This is# hoever# not possible
unless F., is converted into an autonomous body run by competent# honest and efficient
persons" 5ollection of taxes orth these levels can eliminate budget deficits" ,esultantly#
Pakistan can concentrate positively on retiring costly debts in the shortest possible time
and making huge savings on debt servicing!it is paying ,s" ));& billion on this account
alone in the current fiscal year and it ill exceed substantially next year" In fiscal year
'()'1)<# F., collected $ust ,s" )B<' billion hile PakistanAs outflo on debt servicing
alone as ,s" B6( billion" The only ay out is to collect taxes at least to the tune of ,s" ;
trillion hich# is not possible unless tax enforcement is ensured at all levels# collection
leakages are plugged and F., is restructured"
OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
The riters are 2d$unct Faculty at =ahore Gniversity of Management +ciences (=GM+)
and partners in la firm# Huzaima & Ikram (Taxand Pakistan)"