ARTICLE (April 16 2010): On November 25, 2008, the International Monetary Fund (IMF) approved the $7.6 billion standby arrangement for Pakistan to be delivered over 23-month, which was later enhanced to $11.3 billion in July 2009.
As expected, a number of conditions were imposed by the IMF for this "generous" lending! One of the demands of the lender was introduction of value-added tax (VAT) from July 1, 2010, coupled with surrendering control of monitoring of the revenue collection to the IMF; six of its directors and two of the World Bank since then are supervising revenue collection and the preparation of the Federal budget of Pakistan.
There are remarkable similarities in the operations of the IMF/World Bank in Pakistan and the era of revenue collection in the sub-continent by East India Company. The operations of East India Company paved the way for the Queen's annexation of the sub-continent through local gumashtas (agents) - the role now played by officers of the FBR. According to many historians, the East Indian Company's tax collectors would take away one half to two-thirds of the crops. Therefore, the peasants' lives were most miserable during the colonial period - the same is the case now for Pakistanis at the hands of the FBR's tax babus.
Sindh and the Punjab governments have shown concerns about the VAT. All the representatives of trade and industry have rejected it. Yet the FBR is advocating it on behalf of its foreign masters, knowing it will have devastating effects for our economy. The industrial and business growth in Pakistan has been retarded due to a host of factors. The single most disastrous cause is the persistent anti-business attitude of babus sitting in the FBR.
In the past, bureaucratic idiosyncrasies destroyed many investment policies. These policies were subjected to inconsistent interpretations and arbitrary changes by the bureaucrats, who were running the show as there was no system of checks and balances to monitor their attitude and working. Even today, the FBR seldom accepts what is announced by the Board of Investment. The private sector is highly critical of the FBR, which they consider to be corrupt and inefficient, with too much discretion.
The business environment will never improve if this situation continues. The FBR and its field formations suffer from attitude problem besides being undoubtedly corrupt and inefficient. The honest ones in the FBR are even the worst. They, being sadists, are bent upon to destroy everything around. They create such huge demands against the taxpayers that it is no more possible for them to run the business. This attitude can be verified from the various decisions of the Tax Tribunal where their arbitrary tax assessments are quashed, but the taxpayers pay a heavy price for it both in monetary terms and mental torture and agony they suffer. It is strange that the FBR takes no action against them even after their orders are held to be unlawful, excessive, arbitrary and unreasonable.
The zeal and enthusiasm of the tax machinery in collecting taxes is motivated mainly by self-interest as they are more interested in meeting their individual targets than those fixed for the state. Therefore, their conduct and working is always viewed with suspicion and distrust by the general public. There are a number of reasons for this reaction. The highhanded and corrupt tax officials have created a general atmosphere of distrust between the taxpayers and the state. The successive governments have failed to utilise the taxpayers' money in a transparent manner. The ruthless misutilisation of public money by the corrupt rulers has forced the people to openly defy the tax laws. The main reason for decrease in foreign direct investment (FDI) is this prevailing situation in Pakistan. The foreign investors are reluctant to come to a place where tax officials demand their share for not participating in any productive process of the business.
Over the last many years, the need for tax reforms is stressed and reiterated by all quarters, including the government itself. However, each attempt in this direction during the last several years proved to be a complete failure - the case of Tax Administration Reforms Programme testifies to it. The main reason for this failure is that search for rationalisation and simplification of our tax laws is misdirected as we are living in an era of complex and intricate economic environment. Neither the official policymakers nor the professionals, hired on behalf of IMF/World Bank, possess the vision for this gigantic exercise, as they lack the understanding of mundane realities of Pakistan - stress for introduction of VAT is a classical example.
The most neglected area is dispensation of justice to taxpayers. Our tax justice system is the worst in the entire world. The tax machinery is becoming ruthless by every passing day and almost every taxpayer has now become a victim of abuse of powers (arbitrary as well as unlimited!) at the hands of tax officials. Those who do not pay taxes in connivance with the tax collectors are satisfied and safe. For them not paying to the state is better than paying the tax collector for his self-aggrandisement. This is a pathetic state of affairs we are facing these days. The tax collectors want to achieve their unreasonable (sic) targets from them without bringing into tax net those (presumably their "friends") who do not pay. In these circumstances, the existing taxpayers get arbitrary tax demands and there is no effective justice system to come to their.
It is a mockery of justice that in the hierarchy of tax judicial system, first appellate authorities are directly subordinate to the FBR. Everybody knows the problems of these so-called appellate authorities, who are nothing but part and parcel of revenue collection machinery. The judicial system under the tax codes, or for that matter under any statute, should be completely and truly independent of administrative interference or control. It is an essential prerequisite for ensuring proper tax compliance and confidence of taxpayer in the system.
The present tax culture is based on "bad faith" between the taxpayers and the tax collectors. Both are victim of self-interest and their main aim is to cheat each other. This culture can only be changed if an effective judicial system is introduced and properly implemented. All appellate authorities should be part of the judicial service working under the administrative control of the high court. The present working of tax tribunal under the Ministry of Law is against the principle of "independence of judiciary". The Tribunal as well as first appellate forum (commissioner/collector appeals) should work under the high court of their territorial jurisdiction. The same system is presently in vogue for civil judges/magistrates.
It is the need of the hour to free the tax judicial system from the administrative clutches of Ministry of Law and the FBR. The business growth cannot be achieved by just announcing policies and concessions. The system must work and there should be realities on the ground to ensure the confidence of investors, who is always shy and shrewd. No system can work unless it has effective check and balance mechanism. An independent tax judicial system alone can guarantee the business expansion and investment introduction as well as the proper collection of revenue in Pakistan.
[The writers, authors of many books and tax advisers, are Visiting Professors at Lahore University of Management Sciences (LUMS).]
Source: http://www.brecorder.com/index.php?id=1046004&currPageNo=1&query=&search=&term=&supDate=
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