There is a huge variation of Rs. 81 billion in tax collection figures between the Federal Board of Revenue (FBR) and that reported by the State Bank of Pakistan (SBP) for the period of 2020-21.
According to the latest audit report of the Auditor General of Pakistan (AGP) of FBR (the audit year 2021-22), the said variation in figures may not present a true and fair picture of financial statements because the revenue receipt figures from the external sources i.e. SBP was on the higher side. There is also a difference of Rs. 6.98 billion in the refund payment figures reported by the FBR and those maintained by the SBP.
The AGP has recommended the FBR for reconciliation of data with the SBP for the period of 2020-21. The FBR has told the AGP that there is no mechanism for reconciliation between the FBR and the SBP at the headquarters level.
The AGP stated that the FBR obtained supplementary grants of Rs. 41,367.72 million, which included an amount of Rs. 40,000 million expended to pay refunds to the taxpayers. Audit observed with concern that the refund is a deduct receipt and its payment is required to be reduced from the overall collection of the FBR rather than obtaining the supplementary grants from the consolidated fund.
By this arrangement, the FBR unlawfully managed to show net collection on the higher side, but when critically analyzed, the distribution of the funds to the provinces was incorrectly allocated.
The past years’ trend shows that the FBR has a tendency to lag behind the original target and therefore get the target revised to an amount likely to be achieved by the end of the financial year. As a result of the audit, recovery of Rs. 418,436 million was in the process out of detections of over Rs. 418 billion during 2020-21.
On the other hand, Rs. 25,566 million has been actually recovered and verified by the Audit department. Moreover, an amount of Rs. 37,662 million has also been recovered from January 2021 to December 2021.
Key audit findings revealed less realization of income tax due to the non-finalization of proceedings under the relevant head of Rs. 19,094.74 million. The incorrect claim of the tax credit of Rs. 11,672.79 million and incorrect adjustment of brought forward losses of Rs. 23,189.90 million.
The less levy of income tax due to allowing inadmissible expenses caused a revenue loss of Rs. 40,791.37 million. The FBR failed to recover revenue loss due to the concealment of income or assets of Rs. 11,880.21 million.
Less realization of sales tax due to non-apportionment/inadmissible adjustment of input tax caused a revenue loss of Rs. 9,428.45 million.
Loss of revenue due to non-collection of sales tax on taxable goods and services caused a revenue loss of Rs. 1,170.87 million. The FBR has made excess payment of refunds of Rs. 856.69 million in excess of input tax actually consumed in supplies to the zero-rated goods.
The FBR failed to stop the under-valuation of the imported goods which resulted in a revenue loss of Rs. 3,480.73 million. The blockage of revenue due to the non-disposal of confiscated goods caused a revenue loss of Rs. 6,818.99 million.
The inadmissible expenditure on account of pay and allowances caused a revenue loss of Rs. 117.68 million and irregular expenditure on account of the splitting of purchases caused a revenue loss of Rs. 198.92 million.
AGP has recommended to the FBR that there is a need to evolve a mechanism to collect information from various institutions to identify potential taxpayers on the basis of economic activity. The FBR should document all economic activities and end preferential treatment given to different sectors. There is a need to integrate all supply chain data into the FBR Management Information System (MIS)/Tax Management System throughout the length & breadth of the country.
The FBR should develop and strengthen the control for proper assessment and realization of government revenue; expedite digitalization of all processes of tax management and finalize legal proceedings against the cases booked by FBR through its NDB (National Data Bank) in a given time frame and a mechanism for proper oversight of FBR for reconciliation of cases by field offices.
The FBR should also ensure efficiency, tax, and accountability in FBR administration in order to broaden the tax base and initiate incentives to taxpayers in order to broaden tax base and action be initiated against defaulters as well as strengthen the overall internal control environment of BTB activity to enhance the tax base and revenue.
The AGP has regretted that no concrete steps were taken by the Government/FBR to document the economy and gradually broaden the tax base by the inclusion of all informal sectors under the tax net.
The FBR also failed registration of persons having high economic activity liable to be registered under tax laws; the digitalization of the tax system was also slow and ineffective and non-initiation/finalization of legal proceedings; non-pursuance of BTB cases booked by the FBR on high economic activity and by its field formations. The internal control environment of BTB activities of the field formations was ineffective and inefficient.
