Karachi, October 16, 2024 – Federal Board of Revenue (FBR) Chairman, Rashid Mahmood Langrial, has expressed grave concern over the widespread sales tax fraud in Pakistan, particularly highlighting how “flying invoices” have morphed into a full-fledged business.
Speaking at the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) on Wednesday, the FBR chairman shared a startling anecdote about a recent encounter where an individual openly admitted that his business revolved around issuing fraudulent invoices.
“They even call illegal activities a business,” Langrial remarked, underscoring the brazenness with which such activities are carried out.
In a further shocking revelation, Langrial disclosed that corruption within the FBR itself is fueling the problem. He shared that retired FBR officers have admitted to taking bribes for processing refunds. According to the officers, smaller sums are accepted for legitimate cases, while significantly larger amounts are demanded for fraudulent refunds. This revelation highlights the systemic issues plaguing the country’s tax collection infrastructure.
Struggling Economy on the Mend
Turning to Pakistan’s economic situation, Langrial acknowledged that the past few years had been incredibly challenging. However, he expressed optimism that the situation is now improving. With inflation on the decline, the policy rate has also begun to decrease, a key indicator of economic recovery. He noted that economists are predicting further cuts in the policy rate in the coming months, signaling a more stable financial environment on the horizon.
Langrial emphasized that despite the pervasive tax evasion, there are still many upright individuals and businesses contributing their fair share to the economy. “There are traders and industrialists who do not evade even a single rupee of tax,” he said. “These people do not feed their children anything illicit.” He also acknowledged the existence of dedicated officers within the FBR who are working diligently for the betterment of the country, though he lamented that their numbers are far too few.
Tax Collection Woes
Langrial painted a bleak picture of the nation’s tax collection system, highlighting that despite efforts over the years, the system remains deeply flawed. “Where it stood in 2008, it still stands today,” he said. “It is not right to use the entire year’s tax collection to pay off just the interest on debt.” He added that under the current circumstances, the economy is essentially running on borrowed time, with no clear path to solvency.
Perhaps the most startling statistic shared by the chairman was that 90% of Pakistan’s population does not pay taxes. Out of 43 million households in the country, only 4 million are registered taxpayers. This stark disparity, combined with a high GST rate—recently increased from 16% to 18%—poses a significant burden on those who do pay taxes. Langrial argued that the tax rate is too high and must be reduced, especially for corporate taxpayers. “The corporate tax rate should not exceed 25 percent,” he asserted, adding that further increasing taxes would only worsen the situation.
Reforms and Accountability
Regarding the Tajir Dost Scheme, which aims to create a more business-friendly environment, Langrial acknowledged that there might be design flaws but maintained that the FBR should not abandon its efforts. He also defended the recent requirement for Chief Financial Officers (CFOs) of companies to file affidavits verifying the accuracy of invoices. “This is all present in the sales tax law,” he said, reminding critics that penalties and arrests for fraudulent activities have long been part of the legislation. “Those who commit fraud and evade sales tax need to be caught,” Langrial concluded, reinforcing the FBR’s commitment to reform and accountability.
With the FBR stepping up efforts to combat fraud and promote transparency, the country faces a crucial turning point in its economic recovery journey.