There have been a number of factors responsible for holding back the tax revenue growth and retarding improvement in fiscal position of the country. One of the major ones among them has been the grant of duties and tax exemptions through Statutory Regulatory Orders (SROs) by the Federal Board of Revenue (FBR) which has, more or less, acted as a sieve to reduce the overall level of revenue receipts over the years. Fortunately, somebody in the government seems to have finally taken a notice of this unhealthy practice and decided to check the misuse of this anomaly. According to a report in this newspaper on 31st March, 2015, the Federal Government may move a Bill in the Parliament, before presenting the budget for FY16, to withdraw the powers of the FBR to issue SROs for the grant of tax exemptions. In this connection, a draft bill is under consideration of the government to amend the Sales Tax Act, 1990, the Customs Act, 1969, the Income Tax Ordinance, 2001 and the Federal Excise Act, 2005 to delete provisions dealing with the powers of FBR to issue SROs for exemption of duties and taxes. After the FBR is defanged, these powers could either be given to the Economic Coordination Committee (ECC) of the Cabinet or surrendered to the Parliament which would then be competent to grant exemptions under these heads.
It is a commitment given to the IMF by the government to drastically curtail the number of SROs; and it is also aimed protecting various local industries. It could be a major improvement over the existing arrangement whereby FBR is empowered to grant various kinds of exemptions through SROs after due approval by the Finance Minister and necessary clearance by the Law Ministry. There is perhaps no denying the fact that this authority of the FBR has been often abused by powerful lobbies and vested interests to reduce their tax burden through the powers that be and promoted a culture of patronage and corruption at certain levels of the government. Since such exemptions were granted during the course of the year, the FBR usually found it difficult to meet the tax targets, resulting in higher budget deficit than envisaged at the beginning of the year. There are also certain other pitfalls generally associated with the present system. For instance, the arrangement was inequitable in the sense that it favoured those industrialists with businesses which are relatively closer to the government of the day and could approach it easily to extract seemingly unlawful gains. However, the beneficiaries who would want to retain the status-quo could argue that the new system would not be able to respond promptly to the unfolding situation as the parliament or the ECC will take a longer time to grant an exemption if it is immediately needed due to certain unexpected developments like sudden fluctuation in prices at home or abroad. This may deprive the country of its competitiveness or slow down the imports of urgently-needed commodities or services. Although, such an argument could technically be defended, such a shortcoming in the proposed arrangement could be overcome to a certain extent by rushing it through the parliament and the Senate by invoking its urgency or through the issuance of a Presidential Ordinance in cases of emergency when the Parliament is not in session. Anyhow, while the move appears to be fully justified in our context, its perceived weaknesses could be largely taken care of by ensuring efficiency, promptness and transparency in the working of the government. In the ultimate analysis, however, it is the honesty of purpose of various stakeholders which could make a system clean and successful only if forums such as the Competition Commission of Pakistan (CCP) and the National Tariff Commission (NTC) vet the proposals and provide input as well as guidance to parliamentarians.