WEB DESK: Finance Minister, Muhammad Ishaq Dar, in his budget speech in 2015, said: “I would also like to announce that the refund due to the export oriented sectors relating to tax periods till 31st May, 2015 shall be issued by 31st August, 2015 periods till 31st May, 2015”.
This promise was not fulfilled. In November 2015, he again pledged to release the blocked refunds, but once again the promise remained unfulfilled despite repeated requests from the taxpayers. The Federal Tax Ombudsman (FTO) also took serious notice of the matter when many complaints were filed. FTO constituted a committee to look into the matter and suggest remedial measures. The Committee gave its findings and asked the government to release all refunds without any further delay. Before the FTO Committee, an assurance was given that all the withheld refunds would be paid by 31st August 2016. Fifteen days are left to fulfil this third promise made within two years.
It is learnt that during a recent meeting with some members of chambers, Finance Minister had asked the business community to offer some discount in respect of overdue refunds. This irritated them as they took it as adding insult to the injury. In fact, huge compensation is due on the long overdue refunds and FTO has ordered the payment of the same along with principal amounts without any further delay. The recommendations/orders of FTO for payment of refunds have been openly ignored/defied by the tax officials. They say we are not responsible for non-issuance of refunds as the “orders come from the top”.
Ishaq Dar, during a hearing before the Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization on November 26, 2015, admitted that Federal Board of Revenue (FBR) had to pay blocked refunds of over Rs 200 billion. This was obviously done to show higher collection to International Monetary Fund (IMF), though refuted by Finance Minister, Special Assistance to Prime Minister on Revenue, Haroon Akhtar Khan and Chairman FBR. The withholding of refunds in 2016 exposes tall claims that tax-to-GDP ratio has exceeded 11%!
If blocked refunds, unlawful recoveries, disallowance of inputs under sales tax regime and advances taken are excluded, collection in 2015-16 was as pathetic as was in 2014-15. Like Tariq Bajwa, Nisar Mohammad Khan and his team, it is confirmed by now, engineered “extraordinary growth” by blocking huge refunds, besides using other negative tactics, to inflate collection.
Income tax collection in fiscal year 2014-15 was Rs 1033.7 billion and projection for 2015-16 was Rs 1307 billion. The actual collection, reported by FBR, is Rs 1220 billion-showing shortfall of Rs 87 billion. This also includes blocked refunds and advances plus unlawful recoveries.
Collection of sales tax in 2014-15 was Rs 1088 billion and projection for 2015-16 was Rs 1230.3 billion. By raising sales tax on POL products from 17% to 30-50%, the government managed to collect Rs 1329 billion in 2015-16. Customs collection in 2014-15 was Rs 306 billion and projection for 2015-16 was Rs 348.5 billion. After levying regulatory duty on over 300 items, it was increased to Rs 404 billion in 2015-16. Federal Excise collection in 2014-15 was Rs 162 billion. Against projection of Rs 200.9 billion, actual collection for 2015-16 was Rs 177 billion. It is clear from these figures that wonderful achievement (sic) is just a hoax.
In reality, targets of income tax and excise are missed despite blocking refunds. The growth (sic) in sales tax and customs is due to increase in rates, imposition of regulatory duty and due to blocked refunds and duty drawbacks.
In 2014-15, FBR failed to meet the third revised target. The original target of Rs 2810 billion was first reduced to Rs 2691 billion and then to Rs 2605 billion. On shortfall of over Rs 220 billion vis-à-vis original target, the then Chairman FBR, Tariq Bajwa and his team received kudos from the Finance Minister, besides bonuses! Everybody knew that even collection of third revised target was made possible after imposing additional taxes of more than Rs 360 billion, blocking refunds of Rs 200 billion and taking advances of many billions not yet due (‘Musical chairs?: A clean-up job in FBR on the cards’, The Express Tribune, July 25, 2015). The non-issuance of refunds, due to industry and other taxpayers, has become a racket and national shame. FBR is not paying these refunds since long-see details in FBR’s circular debt, Business Recorder, December 4, 2015.
On November 26, 2015, Finance Minister told the House Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization that “an out of the box solution is under consideration to clear all the pending refund of Rs 200 billion in an effort to avoid their financial impact on federal and provincial governments’ income”. Ishaq Dar told the Committee that “in case of payment of refunds from divisible pool, it would cause serious consequences on federal and provincial governments’ income.”
It was a strange and shocking argument. Who was responsible for showing inflated income? Why should taxpayers suffer? They are deprived of their legitimate refunds for imprudent actions of Finance Minister and others! The question that members of National Assembly and Senate have never posed to Finance Minister is: Why to show inflated collection by holding bona fide refunds?
In February 2016, the exporters postponed their protest against non-release of multiple tax refunds, which they claimed had accumulated to the tune of Rs 343 billion after assurance from Finance Minister that issue would be resolved soon. The associations of five export sectors on February 15, 2016, while announcing postponement of their planned protest planned February 15 to March 3, deplored what it called “the government’s apathy towards ending the financial ordeals of the exporters”. According to Chairman Pakistan Apparel Forum, Javed Bilwani, “the country’s exports have fallen by 14.37 percent to a 32-year low”.
Addressing a joint news conference at the PHMA House, he asked the government to reduce the power tariff for industrial users as per the Prime Minister’s announcement on December 29, 2015. Bilwani slammed the government for not implementing the incentive package announced by the Prime Minister in a meeting with the representatives of industries on September 11, 2015.
“Despite the passage of five months, no package has been provided yet,” he added. He said the government had been holding billions of rupees refunds of the exporters, which continued to reduce their industrial production and exports. Bilwani recalled that Finance Minister had during his budget speech announced to release all refunds within three months. He said the government had “failed” to lift the country’s exports. He was of the view that the government had adopted “wrong” economic policies to arrest the fall in exports.
All the bodies of exporters pressed the government to speed up release of the held-up payments and revive ‘no payment no refund’ system. Besides, they sought a reduction in power, gas and water tariffs for the export sector. “The power rate in Bangladesh and India is $0.10/kwh, while in Pakistan $0.14/kwh. The industrial captive power plants’ gas tariff of Bangladesh is $3.01/mmbtu and India’s is $4.66/mmbtu, while in Pakistan it is $7.68/mmbtu,” they added. Resultantly, exports have been falling. There was a 9 percent drop between first ten months of FY15 and FY16 according to data released by State Bank of Pakistan. Total textile exports fell by 6 percent driven by cotton and cotton yarn (readymade garment grew by 5 percent), carpet exports fell by 18 percent, sport goods by 8 percent, leather by 16 percent in this time period.
It is now well-established that the blockage of refunds in 2015 and 2016 created a serious liquidity crunch for the all business houses, especially the exporters. Estimates provided by business associations suggest sales tax refunds, customs duty rebates and draw-back for local taxes and levies (DLTL) claims to the tune of Rs 350 billion. They got published full page advertisements in Business Recorder and elsewhere that due to unpaid refunds, exports have been suffering immensely as they were facing cash flow problems.
Their bona fide requests have not moved Ishaq Dar, Haroon Akhtar and Nisar Mohammad Khan till today. Ministry of Finance and FBR reportedly have yet not made any concrete plan to clear huge refunds that are increasing every month. Chief Executive Officer of Trade Development Authority of Pakistan (TDAP), S. M. Muneer has recently said that “export target of US $35 billion can be achieved in next three years subject to immediate payment of exporters refunds stuck up since long”. This statement should be taken seriously by the government.
Till today, FBR has also not made public the details of outstanding refunds, what to speak of paying the all. For good governance and transparency, fiscal data of this nature should be made available on the websites of Ministry of Finance and FBR. It should be updated every month so that people know how much tax is collected under various heads and what is payable to the taxpayers. This is their fundamental right under Article 19A of the Constitution as well.
(The writers, tax lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)
Source: Business Recorder