NAB suggests ways to FBR to check Rs2,000bn tax evasion
To check the revenue-related corruption and tax evasion of an estimated Rs2,000 billion annually, the National Accountability Bureau, on the recommendation of its committee of experts, has sent to the FBR a comprehensive package for implementation to overhaul the country’s tax machinery.
The creation of an independent Pakistan Revenue Regulatory Authority, shifting of tax appellate authority from under the FBR to respective high courts, transparency in the FBR system, minimising leakages and fraud of taxes, broadening the tax base by declaring CNIC number as individual’s NTN number, sale and transfer of properties on market value, registration of all properties (private and commercial) and businesses, all receipt and payments above 50,000 should be through only banking channel, etc, are the main suggestions.
The package has been prepared by a high-level committee set up under NAB Deputy Chairman Rear Admiral Saeed Ahmed Sargana and comprising Aliya Rasheed, DG (A&P), Syed Adil Gilani, consultant TIP, Sohail Ahmed, ex-chairman FBR, Badar-ud-Din, chief sales tax/FE (Policy) FBR, Dr Saeed Ahmed, Director (AC & MFD)/Rep of State Bank of Pakistan, Syed Asad Mashadi, representative of FPCCI, Rashid Ibrahim, FCA representative of ICAP, Munawar Hussain Shaikh, president PTBA and others.
The committee was formed on the basis of a report by the Transparency International Pakistan in which the annual leakage of over Rs2,000 billion was identified in 2013 and recommendations were given to the Supreme Court.
The major highlights of the scheme as prepared by the committee include:
— The scheme of tax Appellate authorities should be brought in line with the provisions of the Constitution of the Islamic Republic of Pakistan, by removing adjudicating officers from subordination of FBR. Commissioner (Appeals)/Collector (Appeals) be appointed and directly work under the supervision of Ministry of Law and members of appellate tribunal should be appointed and work under the respective high courts. The officials of FBR once transferred to appellate forums should be transferred for the balance period of their service without any option to come back to parent department. The tax machinery under the control of the executive side is an obvious impediment in providing fair and quick justice to the harassed and bona fide taxpayer.
— The Federal Board of Revenue shall only be an implementing board, under finance ministry. It shall be relieved from performing the role of a regulator.
— An independent Pakistan Revenue Regulatory Authority (PRRA) shall be constituted, which shall make laws for revenue generation and report directly to the prime minister. It may comprise five professional members i.e. three economists, one law professional and one chartered accountant.
— Introduction of an efficient, reliable and user-friendly automation system will help bring transparency in the FBR system, confidence in the FBR working, minimise leakages/fraud of tax, provide confidence to honest and willing taxpayer, broaden the tax base and minimise personal contact.
— Enterprise Resource Plan (ERP) software be launched by the FBR in two phases, first by 1st July, 2015 and second by 31st December, 2015.
— Exemption under Section 111(4) of the IT Ordinance to the foreign exchange brought into Pakistan through proper banking channel should be withdrawn.
— Appropriate laws should be made to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of assets outside the country for which source of income could not be established. Pakistan should sign bilateral/multilateral agreements with countries where there is suspicion of Pakistani citizens illegally maintaining bank accounts and other assets to bring back the untaxed wealth from ‘tax heavens’ abroad as being done by USA, India with Switzerland.
— Presently, State Bank of Pakistan is issuing bearer certificates/prize bonds of large denomination, which is not only providing opportunity to tax evaders to park their black money under this mode of financial instruments, but providing avenue to whiten black money at a reduced tax rate. Bearer certificates/prize bonds of Rs7,500/- and above denomination be issued by name.
— Presently provinces are collecting stamp duty on transfer of immoveable properties at the values prescribed by the respective revenue collectors, which mostly do not commensurate with the prevailing market rates. It helps black money getting whitened without any cost (tax). The federal government should work with provincial governments to create biannual/annual market rate-based realistic table of evaluation and reduced rates of not more than 1% of market rate as stamp duty and other levies for transfer of immovable properties.
— To maximise documentation of economy and broadening of tax base, CNIC number shall be declared as National Tax Number w.e.f 1st July, 2015; all CNIC holders having income above taxable limit shall submit annual tax return.
— Federal government in consultation with provincial government should carry out assessment of the market rate of properties by engaging 3rd party and should produce a reference document. The same should be revised and issued every year on 1st July. Provincial excise departments should be engaged for the purpose. In this regard, stamp duty and other levies for transfer of property should be between 0.5% to 1%.
— All businessmen and retailers must be registered with licencing authority and with FBR.
– All receipt and payments above 50,000/- should be through only banking channel and other transaction should be banned.
— Incentives should be provided to those retailers/wholesalers who install electronic cash register without any turnover thresholds and connect with FBR database. They should also be absolved one time from payment of previous sales tax liabilities.
— Sales Tax/VAT should be implemented in its true form through effective utilisation of Nadra database.
— Complete details and database of all the owners/holders/allottees of the property (including residential, commercial, industrial), private vehicles, trucks, buses, international traveling, utilities with some threshold (including residential, commercial and industrial), transactions above certain threshold made through credit cards, debit cards/ATM, cross cheques, pay orders/ all other banking channels, investment in fixed deposits, national saving schemes and stocks be prepared and on the basis of that information, a complete profile may be generated and used effectively.
— Presently monthly or annual statements are required to be filed where withholding tax is affected. However, it is suggested that the filing of such statements should also be made mandatory for the housing societies for registration/transfer of immovable property (industrial, commercial, residential and agricultural). Motor vehicle registration authorities, clubs (private and public), credit card issuing authorities, Central Depository Company, National Clearing Company of Pakistan, large-scale private hospitals and schools and financial institutions distributing profit more than statutory taxable limit or granting commercial loans, airline companies, FIA for traveling record and such information is crossed-matched with the existing data with FBR. Withholding penalty should be minimised. In case the statements are filed within one week of the prescribed time, defaulters may only be warned. However, if the default continues for more than one week penalty be imposed.
— The taxes must be equitable and fair between different classes of society. The payment of tax by all the segments of the society must be convenient. The laws imposing taxes must be so precisely and clearly worded so as to make the taxpayer understand what the burden he is called upon to bear.
— To give comfort and confidence to the existing honest diligent, taxpayer bona fide and increased tax collections should not be made from them, but from those who are not reporting or under reporting. This will ensure a level playing field for all income earners and eliminate the incidence of income earners from other sectors parking their wealth and income to avoid taxes.
— Accountability in tax administration must be introduced. The rampant corruption, without any real accountability of under-performers in delivering optimal collections from income tax, sales tax, customs and excise combined with misuse of powers are the reasons behind the inefficiency of the tax machinery and, therefore, this needs to be corrected.
— Fiscal and taxation policies should be announced to remain static for at least three years. There should be consistency in tax policy and a strong political will to enforce the law in letter and spirit leading way to three-year budget.