February Issue 2019
“We are taking a holistic view on how tax policy, tax law and the FBR could be more performance-driven” – Muhammad Hammad Azhar
How do you keep a check on corruption? Did you develop a team of your own?
The Federal Board of Revenue (FBR) has a very strong hierarchical structure and I work with the top members, such as those in the administrative, legal, customs and policy departments. Instead of building my own team, I have developed very good working relationships with these people. When I took office, the chairman had just joined the FBR, so he replaced most people and brought in those who had a good reputation. He made some great selections. We brought in people based on an extensive consultative process at different tiers of the FBR. We are directly involved in policymaking and the chairman looks after the day-to-day operations. That’s how we keep a check on corruption.
How long did it take you to identify the problems in your department?
It’s about the complications in tax laws, rampant corruption in the organisation, and an attitude that is not very business-friendly. I have always known about these problems, but I see new anomalies every day, hindering businesses and entrepreneurs. We have a 360 degree view of the challenges that the FBR faces.
What have you achieved over the past five months?
The first target we had was to bring a supplementary finance bill. We built a finance bill of Rs 183 billion revenue, with Rs 92 billion from policy measures that did not impact the lower income groups. All of those taxes were exclusively aimed at high-end luxury goods. The remaining revenue was geared towards administrative measures. There were no changes in the tax policy or law, but simply better administration and technology. The regulatory duties imposed on high-end luxury items are now registering greater revenue growth and, at the same time, there has been an import compression on those items.
Then we put in place the mobile smuggling technology item – a simple technological solution. Mobile smuggling causes an annual loss of Rs 50 billion and we feel we are close to bridging that loss. That’s a great revenue item. We have also had a complete overview and system audit of Pakistan Revenue Automation (Pvt) Ltd (PRAL) – our software and data provider, and the WEBOC system, which is the customs electronic integrated system. We are already online with the automatic exchange of information systems with China, where we get all the trade values data. Through these agreements we managed to get data on 150,000 offshore accounts held by resident Pakistanis.
What is your priority under the wide umbrella of reforms?
The first thing we did was to set up a Tax Reforms Implementation Committee that I head. It’s composed of five to six of the greatest tax experts in the country. They are also the authors of the 2016 Tax Reform Commission Report. So we are looking at each and every single law, how it can be improved and, at the same time, we are taking a holistic view on how tax policy, tax law and the FBR – as an institution – could be more performance-driven, up-to-date and upgraded. Already, there has been a change in the mindset, at least if we talk of the top tiers of the FBR. The entire setup at the top is now geared towards the ease-of-doing-business mindset, rather than simply the revenue-chasing mindset.
What is there in terms of relief for the common man?
Pakistan is a poor, resource-starved country. The more revenues we have, the more hospitals we can build, the more schools we can build, the more clean drinking water projects can be carried out. The entire government functions on tax revenues, so the tax revenue implication for the common man is direct and immediate. The more we increase the ease of doing business, the more industries will be set up leading to greater employment; the government could initiate more projects to lift people out of poverty.
People want to know when you expect to recover the looted money…
We have already managed to get the data on 150,000 accounts and are also getting data on offshore properties held by resident Pakistanis. We are currently screening to see which of them are declared and which are not. We are tracing individuals in the data we got from 30 countries, and have formed six commissionerates to deal with it. We are also looking at the laws, how to make it easier for us to bring these tax-evaders to justice.
Economists complain that your government is mixing the two – economic policy and the elimination of corruption.
The elimination of corruption is an essential part of institution-building in the country. No policy that we make will have sound implementation at the grassroots level unless we eliminate corruption. It circumvents all good policies, so I believe that the two are interlinked. Anything you do has to be backed by solid and transparent institutions for policies, in order to be sustainable.
An export promotion policy is what we have lacked all these years. Do you have one?
We brought energy prices at par with regional competitors, for the first time. Then we are launching a negotiable instrument to clear the entire stock of working capital of exporters that is stuck with the FBR. If we inject that working capital into our export sector, it will really take off. Increased exports are fundamental to our economic model.
What are the five points on your agenda to put tax collection on target?
Tax collection is a by-product of economic growth, but at the same time it’s also a by-product of good administration and a transparent and simple tax policy. The five points on our agenda are: 1) To make the FBR a business-friendly organisation; 2) To simplify tax policy; 3) To reach out to all chambers and trade associations and understand what their problems are; 4) To place the right people at the right positions within the FBR and enhance its capacity; 5) To reform the FBR and make it a more transparent, responsible and performance-oriented institution.
How do you propose to bring in Foreign Direct Investment (FDI)?
Pakistan has a huge base for any foreign investor because of its huge consumer base. The only thing hindering investment is our complicated tax system, the lack of ease of doing business and the security situation. While the security situation has improved drastically, we still need to create conditions that will make it easier to do business and give the right tax incentives to attract foreign companies. We also need certainty in policies, which is why we’re going to launch a five-year tax plan and a five-year economic plan, so that all can see where Pakistan is headed.
What are the weaknesses in your government that need to be addressed?
We are working day and night and Prime Minister Imran Khan is leading this work ethos from the front, but we are not able to communicate our hard work to the people. In this era of fake, angled and planted news, I really feel there are lacunae as far as communication is concerned. But we’re working on it.
The Financial Action Task Force (FATF) praised Pakistan’s efforts in curbing money-laundering and may consider removing Pakistan from the grey list. What, in your view, were the steps that led to such an outcome?
These are positive comments from the FATF after a very long time. We’ve worked very hard to curb money-laundering from our airports and borders and to curb terror-financing. Capacity-building is going on in the financial monitoring unit of the State Bank of Pakistan (SBP). We’ve also taken the provinces on board.
What is the country’s biggest problem – poverty, corruption, governance, or something else?
Corruption leads to poverty and lack of reform. A country can be resource-rich like Nigeria, yet poor because of corruption. We need to enhance our democratic system and institutions to stem this epidemic.
Experts are wary of the way the PTI government is handling the economy. There seems to be a lack of direction.
One has to understand the circumstances that we took over in. The economy was near collapse. We inherited a historically high trade deficit of $37 billion, a current account deficit of $19 billion and there were no inflows to finance all of these outflows. The economy needed to be stabilised, which entails a little bit of a slowdown in the short term. The opposition has been cashing in on this for political gains. Despite having created this mess, they’re blaming us for it.
Economists say it looks like you are following the same old path and there are no out-of-the-box solutions.
We are not. Despite the fact that we are facing a huge economic crisis, we are still unfolding reforms to provide ease of doing business, we are reaching out to businessmen. And for the first time in the country’s history, we’ve managed to raise $13-14 billion without the IMF. When you’re stabilising the economy, your options are very limited. It’s only when it is stabilised and you have the fiscal space, that you can bring in reform.
Instead of taxing earnings, PTI too is banking on the oppressive methods of indirect taxation. The tax burden has increased on those already in the tax net.
We have a very aggressive programme of broadening the tax base, and our operation against net high-worth non-filers is already underway. We are identifying people who purchased expensive property and cars but didn’t bother to file their returns, – but that’s a slow process.
How do you hope to enhance the tax collection target?
The tax potential of Pakistan is far greater than what we are achieving, irrespective of the growth rate. A large sector of our economy is informal. We need to facilitate the informal sector to come into the formal one. At the same time, we have to start making it difficult for them to stay in the informal sector. So it’s a carrot-and-stick approach.
Fake news machines are targeting Asad Umar. Why do you think that is happening?
Their ultimate target is the economy. And because the finance minister is the face of the economy, any attack on him panics investors and creates uncertainty. But they’ve overdone it and exposed themselves.