Harmful SRO culture

Published April 15, 2014

THE culture of the Statutory Regulatory Order has over time deeply entrenched itself in the country’s tax administration because of the excessive misuse of legislative powers delegated by parliament — through laws — to the tax authorities. By definition, the use of SROs should be restricted to framing rules and procedures for implementing a tax law or laws. Or it can be used to remove ‘hardships’ and ambiguities — without involving new levies, exemptions, concessions, waivers, etc — that taxpayers may encounter during the enforcement of a tax law or laws passed by the legislature. In Pakistan’s context, however, the FBR has also been given statutory powers to give unlimited tax concessions, waivers and exemptions without parliamentary approval. That is why experts find the excessive misuse of delegated legislative powers favouring powerful interest groups at the cost of honest taxpayers to be at the root of our tax woes. The practice of handing out massive financial favours in the name of tax exemptions, concessions and waivers is not restricted to one particular government or the other. If, for example, the previous government gave away Rs1tr to different powerful lobbies in five years through SROs, the incumbent rulers have already doled out Rs104bn in the first half of the present fiscal, according to a report in this newspaper.

It was with a view to putting an end to the misuse of SROs that the IMF had made the government agree to withdraw tax exemptions to the tune of Rs350bn in three years in exchange for a bailout. It, nevertheless, is surprising that the government is still continuing to offer tax favours, notwithstanding its plans to revoke some tax exemptions in its next budget. FBR officials say notifications issued by the board to give exemptions and concessions are ordered by the political authorities. While it is largely true, the board has overstepped its delegated legislative powers in many cases at its own discretion. The practice of helping favourites through SROs cannot be ended without drastically limiting the taxman’s authority to make rules and remove the ‘hardships’ of taxpayers through notifications. The powers of giving tax exemptions, concessions and waivers should rest entirely with parliament as ruled by the Supreme Court a few times in the past.

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