Tax intelligence and auditing
THE country’s financial policymakers have never found themselves at ease when it comes to introducing some genuine development schemes. Their actual motivation is heavily relying on the tax-generating and-collecting administration, i.e., Federal Board of Revenue.
The FBR has remained firm about bringing the tax growth through obsolete and weathered measures. It has miserably failed to broaden the tax net and tap tax evasion and avoidance. Whereas almost all developed countries possess a sophisticated tax intelligence system whereby they materialise for the purpose of ensuring voluntary tax compliance system and audit. But here in Pakistan we have a very poor tax intelligence mechanism.
As a result, the FBR has failed to launch any voluntary tax compliance programme as yet. This voluntary tax programme, coupled with the tax intelligence system, can drastically broaden the tax net and generate enormous revenue for the finance team.
However, for any developing country running the ever-growing expenditures on a tax-to-GDP ratio of as low as nine per cent is simply asking for too much.
For the purpose, the FBR must open its heart gracefully and introduce material reforms. The tax intelligence system will not only pave way for launching a voluntary tax compliance programme but it can also enforce systematic and justifiable income audit mechanism. But this tax intelligence system is a combination of the availability of basic system and skilled staff, and the FBR is seriously short of them as well. So, mere duplicating the system of developed countries would not help at all. Instead, the FBR should first overcome its shortcomings.
Moreover, this voluntary tax scheme will require efforts to maintain a formidable auditing exercise. Although tax officials have serious apprehensions about this idea, yet it can produce great results in terms of tapping untaxed income. The tax officials are currently resorting to discretionary audits, and nab those who have already declared their assets.
Some of the provisions of the Income Tax Ordinance, 2001, are frequently amended without any regard to international rules.
Under these circumstances, the officials find themselves at will to select the cases for audit, leaving away any norm of transparency. They pursue the existing taxpayers without having any credible evidence of misappropriation. These taxpayers are victimised only for their rightful claim of refunds.
While those who are involved in the tax fraud, high-risk and unreported income, the FBR has no substantial crackdown programme against them. Even those who are wrongly nabbed, they challenge the FBR’s administrative arbitrariness before the court and get themselves relieved.
The FBR must review its administrative working and performance. There is a dire need for comprehensive yet justifiable intelligence and auditing mechanism.
The foremost need is to nab non-filers of returns, then to tackle those who are underreporting their income. The coordination and cooperation between policymakers and tax collectors have to be further strengthened to minimise the chances of the failure of the policy. FBR officials should also gain an easy access to law-enforcement agencies to avoid any adverse situation.
In the meanwhile, the administration should carry on more research and assessment work for the enhancement of its efficiency and capacity.
M. AZAM SHAIKH
General Secretary, Tax Bar Association