Asrar Raouf points out to the problematic issues related to national finances of Balancing revenue deficit
Balancing revenue deficit & FBR is under tremendous pressure to increase taxation revenue amidst tremendous restraints and pressures as the country suffers from extremely narrow tax base and faces profound lack of taxation culture. There are innumerable loopholes in the taxation network both in direct and indirect taxation spheres restricting the ability of the tax collectors to meet the targets assigned to their institution. Quite obviously such loopholes are man-made difficulties but there is hardly any zeal to rectify the situation as the ambit of regulations are widespread and hamper every step taken to improve matters. FBR keeps on pointing out to the various areas that experience massive leakages in taxation revenues but there is hardly any will evident to plug the harmful lacunas otherwise there is hardly any chance that the financial situation will change for the better.
It is in this context that now Balancing revenue deficit & FBR is trying to bring to fore the festering loopholes that are responsible for draining the national financial coffers. It has pointed out that the hurdles placed in the way of Points of Sale system at Tier-1 Retailers and FBR has taken the position that if this task in successfully accomplished then it has the potential to raise revenues that may we be estimated in billions of rupees. This is a point to ponder and it is imperative that amelioratory steps are not taken then it will become difficult to adhere to the revenue targets. In this context there are technical, legislative and administrative loopholes that might compromise this highly important project which the FBR has itself declared a game-changer for improving dwindling tax to GDP ratio for the country. It is quite obvious that when the primary revenue collecting agency is pointing out the flaw then expeditious action is the order of the day.
It is yet again brought to the notice of decision-making circles that some inherent lacunas of the system have surfaced due to legislative and technical specifications. A report in this matter has been prepared after some alleged violations of Sales Tax Invoicing by Tier-1 Retailers and POS integrators. Some technical issues came to fore due to lack of foresight of POS System, which allowed more than three intermediaries for transmission of a fiscal transaction. The database push-pull features are subject to on-demand inquiry and put custodianship of the access network on POS Integrators/Vendors. There is no Operating System (OS) event and Network Tracing mechanism that generates periodic reports to auto-check violations.
The poor technical input while drafting of the law, especially in Rule 150ZEB of the Sales Tax Rules, 2006, exposes the system for tempering and excuses for frequent failure. Another issue is real-time invoice number that is dependent on FBR BCS, which makes the system fragile and unreliable. Moreover, the POS vendors are using high-level specification compliance, while low-level specifications’ compliance has not been defined in the law, which standardises the software. This feature provides the POS user with the option to enable or disable applications at the backend.
It is mentioned further that the POS Systems are not working in Root-Admin, i.e. single-user with root-level privileges mode, which provides POS operators to login/use, and abuses the intent and purpose of the system. Information Security Audit has been superficially defined under Rule 150ZED and no periodic audit has been mandated to check for violation and tempering. Also, there is no segregation between POS system-based on Dumb Terminals or POS-based on Smart Terminals and IS Compliance needs well-defined parameters. Application, sequencing, network, etc anomaly identification and reporting to the consumer, POS Integrator/Vendor and FBR are missing in the specification. Legal Issues in Sales Tax Rules, 2006 Rules pertaining to compliance ignore IS/CIS Compliance Standards that are part and parcel of the fintech initiative of organisations, especially for government bodies and authorities.
A decided opinion expressed in this respect is that once a critical view of the legislation is undertaken then it leaves wide room for manipulation and that pertinent legal issues are presented as under PTA licensing for Internet-Service Providers, Developers and IT Vendors is a grueling process that requires submission of IT Audit along with Compliance Audit and its subsequent submission to SECP which is not available in the said Sales Tax Rules in force. Moreover, the law does not provide for clear performance-based parameters for penalisation, blacklisting, or cancellation of POS Integrator/Vendor license. Application tracing and POS terminals network tracing and automated transmission of trace report, highlighting anomalies is missing in the legislation. A critical analysis of administrative aspect suggests that FBR, as an organisation, has not shown intent to make this high-potential system successful. As a consequence, the Retailers and POS Vendors, in connivance, are taking advantage of these loopholes to ensure failure of this operation that has high potential.
It has become quite obvious that steep revenue shortfall has constrained Balancing revenue deficit Pakistan to seek financial assistance through loans. In this connection Pakistan has signed yet another loan and this time it will be given by Islamic Development Bank. A loan of $1.2 billion financing agreement will be used for import of oil and food products, as Pakistan is in the process of completing procedural formalities to receive oil on deferred payments from Saudi Arabia of a similar value. The Balancing revenue deficit cumulative financing of $200 million per month by the IDB group and Saudi Arabia is expected to ease pressure on the rupee, as 45% depreciation in over three years has stoked inflation in the country. The annual plan would provide integrated trade solutions to support Pakistan’s energy and agriculture sectors for sustained economic growth, it added.
Interestingly Balancing revenue deficit it is for the first time that both the borrower and the lender have agreed to include the import of food products in the financing facility, which was earlier meant only for oil and gas imports and includes financing the import of essential commodities such as crude oil, refined petroleum products, LNG, food and agricultural products, in addition to implementing trade-related technical assistance intervention to ensure trade development impact. Pakistan’s imports have doubled in the first seven months of current fiscal year which have brought the rupee under pressure and it further shed its value to Rs.176.23 to a dollar. For the current fiscal year, the government has budgeted a $1 billion IDB trade finance facility but disbursements are likely to remain above the budgeted amount after the government expedited the purchase of oil on deferred payments. In current fiscal year 2021-22, the government has already availed $1.1 billion financing from the IDB for oil and the number could rise to around $1.4 billion by June.
The $1.2 billion facility is part of the $4.2 billion package that the kingdom approved in November to once again bail out Islamabad. Pak-Arab Refinery Limited (Parco) and National Refinery Limited (NRL) will receive oil on deferred payments from Saudi Arabia on behalf of the government. Parco and NRL have already signed implementation agreements with Saudi Arabia’s Aramco for lifting oil cargoes. Parco and NRL will get oil on deferred payments equal to $50 million every month. In November, the federal cabinet approved to avail $100 million per month oil facility on deferred payment for one year at around 3.8% interest on the amount. TW
Asrar Raouf is a former civil servant