In a significant development, the government has removed the State Bank of Pakistan (SBP) governor and the Federal Board of Revenue (FBR) chairman. The appointment of two International Monetary Fund (IMF) experts in their place is being seen by the opposition as handing over the economy to foreigners while the government claims it will bridge widening financial gaps in the country.
The changes were expected after the removal of Finance Minister Asad Umar. It is said the sacking of the two key officials had been decided even before showing the door to the former finance minister. SBP Governor Tariq Bajwa was asked to resign while he was in Islamabad for talks with the IMF. The development came on a day when Prime Minister Imran Khan had hinted at further changes in his cabinet in the days ahead. However, no official reason was given for his dismissal. There was no indication from the government that it was unhappy with his performance. The SBP governor and the FBR chairman are key players in any IMF programme. The governor is actually one of the signatories to any programme while the FBR chairman is tasked with meeting the revenue target.
However, both former Finance Minister Asad Umar and Prime Minister Imran Khan had given public statements expressing their disappointment with the performance of former FBR Chairman Jahanzeb Khan. The performance of the department was so pathetic under him that Prime Minister Imran Khan once threatened to disband it and make a new authority to collect taxes. In his tenure, the FBR faced the highest revenue shortfall in Pakistan’s history. The figures during the first nine months of the current fiscal year show that aggregate revenue under the income tax, sales tax and federal excise duty was Rs2.186 trillion, posting a shortfall of Rs303 billion against the Rs2.488tr target set for the period. However, during the same period, custom collections surpassed the set target of Rs509.3b, clocking in at Rs510.11b. Despite buoyancy in the customs collection, it is estimated that the annual shortfall in revenue collection from all taxes will be around Rs450b by the end of the ongoing fiscal year.
Income tax revenues, including those collected at the import stage, recorded a shortfall of Rs178b after total collections clocked in at Rs984b against the target of Rs1.162tr for the period under review. Sales tax collection posted a shortfall of Rs116b as the revenues reached Rs1.039tr against the target of Rs1.155tr projected for the first nine months of the current fiscal year. Federal excise duty collections also posted a shortfall of Rs8b as revenue collected reached to Rs163b against the target of Rs171b projected for the same period. Poor revenue collection during the ongoing fiscal year is worrying since the tax base was already eroded by Rs90b shortfall in last fiscal year’s collections. During the previous fiscal year, total collections clocked in at Rs3.844tr against the target of Rs3.935tr.
According to a new document prepared by the World Bank, titled Pakistan Revenue Mobilisation Project, Pakistan has substantial potential to increase tax receipts without imposing new taxes or increasing their rates. The country’s tax revenue potential would reach 26pc of GDP, if tax compliance were to be raised to 75pc, which is a realistic level of compliance for lower middle income countries. This means that Pakistan’s tax authorities are currently capturing only half of the revenue potential — the gap between actual and potential receipts is 50pc, it noted.
Dr. Reza Baqir of the International Monetary Fund (IMF) has been appointed governor of the State Bank of Pakistan (SBP) to serve for a three-year term. He has worked with the IMF for the last 16 years. He has been the chief of the IMF’s Debt Policy Division and worked on IMF policies on external debt sustainability and restructuring of member countries. He has also helped design debt and fiscal policies for crisis-hit countries like Greece and Ukraine, among others. Before the IMF, Dr. Baqir worked at the World Bank, the Massachusetts Institute of Technology and the Union Bank of Switzerland.
Syed Shabbar Zaidi, a Karachi-based partner in the chartered accounting firm A.F. Ferguson, was appointed the new chairman of the Federal Board of Revenue (FBR). He is the third person from the private sector to hold the post. The decision did not go down well at the FBR where the Inland Revenue Officers Association issued a harsh statement and threatened to move court against it. Spelling out his priorities, Zaidi promised to build trust between the state and the taxpayer. “This is done through automation, minimising contact between tax man and taxpayer, and by promoting a voluntary compliance that will automatically lead to base broadening. The term “base broadening” has been overused. Once we take the steps, they will automatically lead to base broadening,” he added. He called the system “anti-tax” and said he wanted to change it.
Reacting to the new appointments, the Pakistan Muslim League-Nawaz (PML-N) and the Peoples Party (PPP) have feared that the country’s nuclear programme could come under threat after the appointment of “IMF representatives”. They claimed the government had handed over the country to “the East India Company”, a reference to the British trade company through which Britain established its rule in the Indian sub-continent in the 18th century. They said it appeared the IMF was relocating its offices to Pakistan.
On the other hand, the government believes the new appointments will steer Pakistan out of the economic crisis. Experts say Prime Minister Imran Khan has realized that the economy needs the help of experts, instead of politicians. The appointment of experts as finance minister, SBP governor and FBR chairman may not be good for the people of the country, because they would end subsidies for them, but put the country on the path to self-reliance.