Abdullah Yusuf, the most effective tax collector in Pakistan's history, has been fired, without explanation, by the PPP government while he was traveling overseas in his official capacity. When the surprise news came, he was in the Russian Federation to discuss customs issues and planned to go to Geneva, Switzerland next, according to Business Recorder newspaper.
Mr. Yusuf's key accomplishments include doubling of the revenue collection to achieve an aggressive target of over Rs 1.04 trillion in 2007-08; implementation of broad-based reforms within the tax system; universal self-assessment regimes; paperless customs clearances and e-filing systems and customer responsiveness with the business trade and bodies for creating a friendly business environment. Before Mr. Yusuf's reforms, the tax collection bureaucracy in Pakistan was notoriously corrupt and inefficient and he faced a lot of internal resistance. Mr. Yusuf is a chartered accountant and financial management consultant with extensive experience in public and private sectors.
Mr. Yusuf was appointed by Prime Minister Shaukat Aziz to the position of the Federal Board of Revenue (FBR) chairman as part of his broad agenda for reform in governance. Mr. Yusuf is also known to be close to President Musharraf. While there has been no explanation offered for Mr. Yusuf's termination, it appears to be politically motivated. This action is particularly troubling, given the revenue growth target for the next five years set at an ambitious 25% per year. Such lofty targets require a highly competent and aggressive FBR leader with a proven track record, like Mr. Yusuf. Pakistan's highest national interest requires that key appointments not be politicized.
It seems that the critics of President Musharraf have been obsessed with a YouTube video clip showing Mr. Yusuf dancing and President Musharraf and former Prime Minister Shaukat Aziz smiling. The focus has been on judging the performance of Mr. Yusuf on the dance floor and his relationship with Mr. Musharraf rather than his undeniable accomplishments as the chief tax collector of Pakistan. Indeed, this is sad day for Pakistan.
Earlier this year, I found myself on the receiving end of lots of email traffic after Mr. Yusuf's video appeared on YouTube. I'd like to share with you one particular message that I found closest to reflecting my own feelings about it. Here it is:
We seem to be a nation of hypocrites. I say this because we seem to judge people quickly from their outward appearance. Surely a human being is much deeper than the outward appearance. There is a hadith that our Prophet prohibited people from condemning any one as kafir, as he said that this was a secret between that person and God. There is a deeper lesson in this.We as a nation are quick to pronounce judgment on the moral fiber of all and sundry in quick time; but do we judge ourselves? Jesus had said, when a prostitute was brought before him for judgment, "let he who has not sinned cast the first stone". Do we ever think along those lines? This is what makes ours a nation of hypocrites. The CBR Chairman, and I did not know him personally; was mentioned to me by many friend and acquaintances of mine who had the experience of dealing with CBR, and I got a unanimous positive appraisal that during the tenure of this chairman, CBR's performance had improved quantum fold in attitude and performance. I also felt this in the form of a major tax-payer of Pakistan; and certainly the level of harassment that one went through the tax department was greatly reduced. Should we be judging this chairman for his good performance at his job, or condemning him for what he does on his own leisure time. To the citizens of Pakistan his performance at his job is most important for the well being of this nation. Dancing, I think, is a natural out-pouring of happiness, and man has been dancing through the ages. So what is wrong here!! I think what is wrong here is using these videos to malign him and judge him unreasonably. May Allah guide us all in the right direction.
Here's the "controversial" videoclip:
What an unfortunate way to fire someone. Just imagine, you're on an official tour about to deal with someone or maybe already talking to someone looking forward for more talks and in the middle of that you're fired! I don't mind him being fired, as the government has every right to do so, but there is a way to do things.
The biggest challenge is to bring in someone who can perform better than Abdullah Yousuf. He has made history, allowed his professional work to speak for himself, and kept quiet when the media made fun of him dancing. What's wrong with him dancing there? He's free to do anything in his personal life!
In most countries, there is a clear distinction maintained between political appointees and career civil servants. The former usually change with the change of government but the latter remain in their positions for some semblance of continuity. FBR chairman is a civil servant who should continue to serve based on a fair assessment of job performance. Any fair person would say that Mr. Yusuf was doing a good job. He should have been allowed to continue to serve, unless the new governing party could find a more competent person with a better track record. Unfortunately, that's not what happened in this case.
Here's a recent Daily Times report about Bhasha Dam in Pakistan:
ISLAMABAD: Deputy Chairman Planning Commission, Sardar Asef Ahmad Ali on Thursday said some changes had been made in Bhasha Dam project, particularly in its power component. In an exclusive interview with Daily Times he said the power component of Bhasha Dam would be run on Public Private Partnership basis so that burden on the government kitty might be reduced. In this regard he said that a ‘Company’ would be established, which would be converted into an international consortium. The consortium would be able to get equity as well as funds from the International Financial Institutions (IFI), Kuwait Funds and others.
Once the Company is established, he said that there would be no problems for funding, as it would be able to borrow from the market and repay the loan. “The government has assigned me to structure the Company,” the Deputy Chairman said and added that he would invite all power distribution companies including KESC to purchase its shares. The government and WAPDA might also purchase its share and later, expatriates would also be offered shares in it. In this manner, it would enjoy the status of an International Company. Its marketing plan would be carried out at world-class top companies and arrangements would be made to conduct internationals show for it. In this way, all requirements for making it an ‘Equity’ would be fulfilled, he added. All these measures have been carried out for the first time in Pakistan.
About PSDP (Public Sector Development Programme) he said that as a routine, the government releases 19 to 20 percent developmental funds in first quarter of the current fiscal year (July-September 2009). Reason for low allocation was the slow process of revenue generation through new measures adopted in the annual budget. PSDP releases for second quarter (Oct to Dec 2009) was already in progress. If the funds are released in time, he expressed hope that the government would be able to achieve its targets. At present, he said there was no indication by the ministry of finance regarding cut in PSDP 2009-10.
Currently the country’s revenue generation remained stagnant at 8.5 percent of the GDP, which he termed as lowest in the world. The government wanted to increase it to the level of 11 percent of the GDP. “Finance Minister Shaukat Tareen informed me that the government identified 2 million new taxpayers in the existing system and if it remains successful, then the PSDP will be remain as it is”, he maintained.
Here's another Business Recorder story on cracking down on tax evasion in Pakistan:
Chairman Federal Board of Revenue (FBR), Sohail Ahmed has said that FBR has found, with the help of Nadra database, that 300,000 to 500,000 people are earning more than tax exempted limit, but are not paying taxes.
Speaking at a dinner meeting of Korangi Association of Trade and Industry (KATI) on Saturday, he said that FBR had advised and persuaded all the newly discovered tax evaders to start paying taxes and sending the SMS on the advice of the Finance Minister, Shaukat Tarin. Referring to General Sales Tax scheme (GST), he said that GST scheme would be converted into Value Added Tax (VAT) mode gradually.
Due to exemptions, concessions and frequent changes in GST scheme it was decided either to clean it or substitute it with the VAT mode, he added. However, he added that VAT would only be implemented after the approval of the parliament but it is more likely that there would be two rates of VAT.
He assured the business community that FBR would consult the stakeholders and take them into confidence before finalising the VAT system. He added that the FBR officials would soon start visiting chambers and trade bodies to discuss and get feedback in this regard.
Sohail said that VAT scheme is prevalent in 150 countries out of which few had withdrawn it, but three of them again adopted VAT mode regime. He opined VAT mode has a potential to generate Rs600 billion as it would be levied both on goods and services, which would be collected by the single agency FBR, provincial assistance and co-operation after getting consensus from all the four provinces during NFC Award meeting.
Regarding Self-Assessment Scheme (SAS), the Chairman said that the scheme would continue as it has yielded good results. He agreed that revenue targets for the current fiscal are not modest but also not unachievable either.
Regarding bowing down to IMF he said that he feels ashamed sometimes when he faces the IMF officials. He agreed with the KATI Patron In-Chief that if, as a result of the incentives given to the expatriates, the remittances double, then the country would not need to beg from IMF.
S M Muneer stressed the need to provide level playing field to the trade and industry in order to compete in the region. He said that Pakistani manufacturers are fully capable of competing or able to perform better than China, India and other competitors if the ever-increasing tariffs of gas and power would be brought at par with the competitors.
He reiterated his claim that if the overseas Pakistanis are given only one percent incentive the remittances would be 16 billion dollars by the next year and there would be no need to beg from the exploiters such as IMF and World Bank.
He said that IMF is all-out to destroy Pakistan's economy and the government must come out of its shackles. The Chairman, KATI, Razzak Hashim Paracha said in his welcome address that VAT should not be replaced with GST without consultations with the business community otherwise its implementation may not prove successful.
He said that VAT mode scheme would be a totally new experiment for our country. It would again take a long time for taxpayers to get accustomed by it. He said that the industry, especially the export sector, should be provided level playing field as soaring utilities prices are causing massive shut down of industrial sector.
The Chairman, KATI's Standing Committee on FBR and Taxation, Mian Zahid Husain advised the government to support legal economy against parallel economy if it wants VAT system to be successful.
He said that tax collectors should collect taxes softly and there should be no harassment otherwise they would not be able to get even the revenue they are getting right now.
Here are some excerpts from an Asia Times report about tax cheating by the rich and powerful feudal politicians in Pakistan:
A case in point is Sardar Farooq Legari, whose estates extend from the Punjab to the Pakhtunkhwa. In 1994-95, he reported "zero income" while he was still the sitting president of Pakistan. Imran Khan, leader of the Pakistan Tehrik-e-Insaf (Pakistan's Justice Movement) shamed the entire landed class by revealing that a practicing lawyer, Khalid Ishaq, paid more in taxes in 1992-93 than all 273 members of the National Assembly combined - 85% of whom were large landholders.
This shaming, however, did not work on lawmakers who kept evading taxes. In 1994-95, celebrated journalist-writer M Ziauddin conducted a thorough investigation into the taxable farm income and tax-paying behavior of wealthy farmers. He found that all landlords in the country pitched in just chump change of 2 million rupees in taxes in 1996 against their annual income of 600 billion rupees. On this scale, Ziauddin concluded that the landowning classes had been evading taxes of 100 billion rupees a year.
This is a blatant case of tax theft, which has spawned its own vicious knock-offs, one of which is "black money" (that is, totally untaxed wealth). In 1996, an economist estimated that black money in Pakistan grew as large as to form 40% of GDP. If left alone, tax evasion in the above-ground economy or underground economy increases the budget deficit and forces governments to shift the tax burden to consumers or to increase money supply.
In either case, it is a whammy for the poor. In the 2008-09 budget, Pakistan has set itself on the course of widening the tax net. In terms of the tax-GDP ratio, the current budget features a relatively high ratio at 14%. The tax base also is on the rise. In 1994, it consisted of an overwhelming majority of the working middle class of 800,000 tax payers, who have now grown to more than 2 million.
The government, thus, can over the next 10 years raise $50 billion - $5 billion a year - to rein in poverty. At the current exchange rate, $5 billion comes to 345 billion rupees. Economist Shahid Hasan Siddiqi believes that Pakistan is undertaxed by 400 billion rupees a year. Its tax revenue should be 1.6 trillion rupees as against the projected 1.25 trillion rupees for 2008-09.
ADB's recent report on Pakistan's economy released before recent floods says tax-to-gdp ratio in FY 2009 under PPP govt dropped to ten year low of only 8.8%.
Here is an Op Ed by Shaukat Tarin, Pakistan's fomer finance minister published in Daily Times:
Pakistan’s perennial structural weakness has been its abysmally low – and declining – tax collection. Even Pakistan’s most powerful government of recent times, that of Pervez Musharraf, left in its wake a tax-to-GDP ratio of less than 10 percent after over eight years in unbridled power. This is amongst the lowest tax collection ratios in the world.
Leaving total collection aside, the composition of tax receipts in Pakistan depicts huge inequity. Direct tax collection constitutes less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at FBR. The bulk of the tax receipts are collected in the form of sales tax. Far from being progressive, the taxation regime is highly regressive, meaning that the poor and less affluent are taxed more heavily as a proportion of their income than the rich.
The other weak (rather, missing) link in public finances is the lack of fiscal effort by the provinces. With some of the largest segments of economic activity such as agriculture, real estate, and services in the provincial domain with regards to taxation, it is baffling that provincial tax receipts total an abysmal 0.7 percent of GDP.
At the heart of it, these issues are related to governance. This state of affairs is a manifestation of a broader challenge that Pakistan has grappled with virtually since independence – the shifting of the burden of responsibility by a small, self-serving and venal elite to the rest of the population.
The flip side of not collecting taxes, and not being able to manage expenditures, is debt. This was never more evident than in early 2008 when a new government took office after elections. It inherited a tax-to-GDP ratio of less than 10 percent, a fiscal deficit of nearly 8 percent of GDP, and a current account deficit of over $14 billion (a record 8.5 percent of GDP). Despite receiving generous assistance from the international community year after year, as reflected in the country’s total external debt rising from $35 billion to $46 billion between 2005 and 2008 (over and above budgetary grants), the previous administration mind-bogglingly resorted to printing currency to the tune of over Rs 700 billion in two years. This factor was a major contributor to the spiral of inflation that was set in motion from 2007 onwards.
The nexus between not collecting taxes and having to borrow cannot be over-emphasised. To place this in context, consider the following: if Pakistan’s tax to GDP ratio had been increased to a modest 13 percent in 2005 when the global as well as domestic economic conditions were most favourable, and kept stable since, Pakistan’s public debt would have been almost 15 percent of GDP lower (at around 44 percent of GDP, instead of close to 60 percent currently). Put differently, since 2005, the government has cumulatively borrowed over Rs 1,600 billion largely on account of not being able or willing to collect taxes.
The net effect of this state of affairs was high inflation, pressure on FX reserves, a decline in the value of the rupee, and an erosion of market and investor confidence. This was a perfect recipe for tipping the country into a full-blown macroeconomic crisis, which came with full force in 2008. To stabilise the country’s fast depleting reserves, it is not surprising that the government had to resort to borrowing from the IMF in November 2008.
Hence, the primary factors behind the increase in public debt over the past three years include recourse to the IMF, a large adjustment in the value of the rupee after several years of the currency being kept artificially stable, and a large decline in grants and other non-debt creating inflows such as FDI after 2007.
Pakistan's top tax man paints gloomy picture of economy, reports The News:
KARACHI: Chairman of the Federal Board of Revenue Salman Sidiqqui has said that the government cannot provide a bailout to the industrial sector as the regime is facing an unannounced economic emergency.
He stated this while addressing a ceremony under the aegis of the Karachi Chamber of Commerce and Industry here on Saturday.
Talking to the media on the occasion, the FBR chairman said that the government was trying to curtail loans to control inflation.
The current amount of loans stands at Rs140 billion not 500 billion rupees, he added.
He said in the first phase, the Islamabad Electric Supply Company (Iesco) would be privatised, adding that the economic sector was facing a crisis and the government could not meet its expenditures.
He questioned how it could be possible to provide resources to the business community in these circumstances.
The FBR chairman pointed out that no one would come forward from abroad to provide a bailout package for the restoration of the economy.
"We should resolve our problems and every citizen should be brought into the tax net," he added.
The FBR chairman suggested that a ban had to be imposed on the government from borrowing from the State Bank.
Policymaking is not the responsibility of the FBR but its function is its implementation.
He advised tax defaulters to contact the actual department for the solution of their problems. The FBR is working for the welfare of various departments.
It is not difficult to overcome the issue of economic deficit through local resources, he underlined.
To a question, he said that the economic downfall started after the government borrowed loans from banks.
Salman Sadiqqui urged businessmen not to attach any expectations to the government as it was facing economic problems.
He suggested traders should set up representatives of the business community for the solution of their problems regarding tax.
On this occasion, a KCCI member, Qasim Teli, said that traders were facing several problems about tax, adding that the traders wanted to pay tax but the policy of the government should be clear in this regard.
The government should improve the tax system. He demanded an end to corruption in the FBR.
Referring to various complaints on export refund claims, the FBR chairman said that a committee of the KCCI should be formed by the chamber office-bearers, who could help the board in resolving the claims of exporters.
"I assure you that all the refund claims will be made expeditiously as compared to the past and non official malpractices will be tolerated," he added.
The FBR chief said that the Board's Revenue Advisory Council will be asked to have a working relationship with the KCCI and further gave an assurance to the business community members that functions of the FBR will be restructured after consultation with the members of the chamber.
Here's an AFP report on Pakistani tax dodgers:
ISLAMABAD — Pakistan is defying mounting Western pressure to end a giant tax dodge with fewer and fewer people contributing to government coffers, spelling dire consequences for a sagging economy.
Tax is taboo in Pakistan. Barely one percent of the population pays at all, as a corrupt bureaucracy safeguards entrenched interests and guards private wealth, but starves energy, health and education of desperately needed funds.
Less than 10 percent of GDP comes from tax revenue -- one of the lowest global rates and worse than in much of Africa, say economists.
Federal Board of Revenue (FBR) spokesman Asrar Rauf said 1.9 million people paid tax in 2010, less than the year before, despite 3.2 million being registered to pay -- itself a drop in the ocean of a population of 180 million.
As a result, Pakistan's fiscal deficit widened from 5.3 percent to 6.3 percent of GDP in 2010, the Asian Development Bank said this month, knocking 2011 growth figures to 2.5 percent and predictions for 2012 to 3.2 percent.
This month visiting British Prime Minister David Cameron pressed the point home, saying aid increases were a hard sell when: "Too many of your richest people are getting away without paying much tax at all and that's not fair".
The IMF last May halted a $11.3 billion assistance package over a lack of progress on reforms, principally on tax.
And despite a flurry of meetings, no new loan has been agreed in the run-up to the IMF and World Bank's Spring meetings.
An IMF review mission is due to visit on May 8. "Consensus is building, we have almost reached agreement (on reform)," one government official told AFP, but gave no details.
What would really work, say analysts, would be scrapping exemptions that serve entrenched interests, such as a 50 percent tax discount on sugar and a gate on taxing agricultural income that largely exempts wealthy feudal landowners.
But stalemate and vested interests have made that impossible.
"There's talk of early elections. One has a brittle coalition. A lot of the reform areas that need to be dealt with have very well entrenched and powerful lobbies that are making the case against it," said a finance ministry official.
As it is, the tiny minority who contribute say they carry a disproportionate tax burden, for which they get nothing in return.
Pakistan suffers from an awful energy crisis, yet government spending on electricity subsidies last year reached just under one percent of GDP, health spending 0.5 percent and education two percent, said the finance ministry.
According to a 2009 study by the Pakistan Institute of Legislative Development and Transparency, the average member of parliament was worth $900,000 and the wealthiest $37 million.
Those figures stand against estimates that a quarter of the population lives below the poverty line and that GDP per capita stands at $2,400.
"No one trusts the government," says industrialist Mohammad Ishaq, former vice president of the chamber of commerce in the northwestern province of Khyber Pakhtunkhwa.
"Without social welfare and with this corruption, nobody is ready to pay tax... in return one gets nothing -- no health, education, social security."
Eunuchs have been appointed tax collectors in Karachi, the financial capital, on the understanding that a visit from the maligned transgender group would embarrass people into paying up.
But former finance minister Salman Shah said tax evasion was inevitable because of corruption within the FBR, which employs 23,000 people nationwide.
"There's a big mistrust of the tax authority itself. That's why a self-assessment scheme came in," said Shah.
Reformer-in-chief: In conversation with Dr Ishrat Husain
Ali. How do you compare the economic policies of different civilian and military regimes in the recent past?
Husain. I would say 2000–2002, when we had a cabinet of technocrats, was the best period of economic management in Pakistan’s history. It was during that period that all the tough reforms – including those in the structure and administration of taxes – were introduced. The period between 2003 and 2006 was reasonably good because the momentum for growth had been created earlier. International confidence in Pakistan’s economy was high and the Foreign Direct Investment flows were at their peak.
The turning point came in 2007, with the announcement of elections, judicial issues and the Lal Masjid episode. In 2008, there was tension between Musharraf and the army on the one hand, and the new civilian government on the other. The government in power between 2008 and 2013 did not pay much attention to economic management. It changed five finance ministers and five governors of the central bank. When the ship is in turbulent waters, you need strong hands on the wheel to bring it to shore safely. We had an economy in trouble between 2008 and 2013 but there was no one minding the store. That created a lot of problems. We did not even implement conditionalities of the International Monetary Fund loan programme.
The current government at least has a very clearly designated steward of the economy. You may disagree with him, but at least we all know somebody is minding the store.
Ali. Why can’t we catch tax evaders?
Husain. When Abdullah Yusuf was heading the Federal Board of Revenue (FBR), tax administration was doing well. The moment the government removed him, the whole process turned topsy-turvy.
Also read: Altaf Hussain: Politics on mute
Let me give you a very specific example. The FBR had a merit-based selection process for key postings in the customs and income tax departments. Those selected were given double the usual salary. As a result of this policy, very good people were selected as regional tax officers and they started generating additional revenues.
The new government came in 2008, and the FBR officials who were not hired for those posts went to politicians and said that they were being treated unfairly. The government doubled the salaries of all the officials irrespective of their merit or performance and the old culture was restored. If the merit-based, performance-related evaluation process and compensation system was allowed to continue, I can tell you things would have improved.
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