Notwithstanding party affiliations, the PTI’s first full-year budget has come under severe criticism from members of both houses of parliament — the Senate and the National Assembly.
The Senate Standing Committee on Finance and Revenue that discussed clause-by-clause the Finance Bill 2019-20 in marathon sessions over the last week had been more vocal against the budgetary proposals with almost all senators termiing the bill inflationary, anti-business and regressive.
Almost overwhelmingly similar feedback came from the lower house of parliament — the National Assembly — where even the PTI’s own former finance minister Asad Umar had adverse rating for his party’s fiscal policies for the next year.
Practically, two parallel systems have been operating in the country to deal with foreign currency accounts, setting up of foreign exchange companies and the licensing of money changers
The debate on the budget in the lower house is usually of a political and general nature and this year was no different. This is despite the fact that members of the National Assembly are directly elected and the finance bill is required to be passed by the National Assembly.
On the other hand, senators reach the upper house through indirect vote and yet it is the Senate Standing Committee on Finance and Revenue where in-depth and serious discussions on the finance bill actually take place.
Paradoxically, the suggestions of the Senate panel on the finance bill are not binding on the government and remain ‘recommendatory’ in nature under the rules — leaving it to the will of the finance ministry to accept or reject all or some of them.
The panel is required to submit its final report to the Senate for formal adoption today even though it has unanimously criticised a lot of budgetary proposals and demanded amendments or reversals.
On other occasions, the Senate panel has been able to make the government retreat voluntarily and withdraw and modify proposals. On one occasion, it caused moral defeat to the treasury benches by rejecting with a majority vote all the ‘tax increasing and price hiking measures in totality’.
For example, the Federal Board of Revenue (FBR) team made a retreat when it agreed to withdraw under criticism from all senators the proposed powers of the income tax commissioners to raid any premises to confiscate undeclared foreign currency or gold.
The FBR agreed to delete from the finance bill a new clause 6A in Section 175 of the Income Tax Ordinance that said “the commissioner shall, subject to the condition as may be prescribed, raid any premises where there is reliable information of undeclared gold, bearer security or foreign currency and confiscate the same in order to enforce any provision of this ordinance”.
Senators feared that such powers could be misused for ulterior objectives/extortion to enter offices and residences of chartered accountants, medical service providers and others for political reasons. The crux was considered draconian and against the spirit of the Constitution that protected the privacy and integrity of citizens and the dignity of human life under Article 14.
The FBR team led by its chairman Shabbar Zaidi also put on the table some of the additional measures that would follow after the budget is passed by the National Assembly by this weekend. For example, the FBR would issue fresh property valuation tables for 22 major cities after July 1 that would be purely market based as assessed by field formations and web services like Zameen.com etc for the purpose of tax collections.
On top of that, Mr Zaidi said the government had also decided to come up with fresh legislation on the pattern of India’s Foreign Exchange Management Act (Fema) to bring into the effective tax net foreign exchange funds taken abroad and brought back (invert remittance) through Hundi and Hawala.
He said more than $40 billion worth of funds earned through corruption and tax evasion had been taken abroad in foreign exchange over the last few years and brought back through invert remittance to build assets. The State Bank of Pakistan (SBP) and the FBR are jointly preparing the draft law by merging two key pieces of legislation — Foreign Exchange Regulation Act (Fera) of 1947 and Protection of Economic Reforms Act (Pera) of 1992.
He said Pera 1992 had become largely ineffective but had been revived by the Musharraf regime in 2001 through Foreign Exchange Accounts (Protection) Ordinance 2001. The law was further changed in 2018. Practically, two parallel systems have been operating in the country to deal with foreign currency accounts, setting up of foreign exchange companies and licensing of money changers.
Mr Zaidi said he would make use of his own expertise to block the outflow of foreign exchange and put an end to the weaknesses of Pera 1992. Giving an example, he said any Indian returning to his home country could retain $2,000 but surrender remaining funds to the Reserve Bank of India. On the other hand, Pakistanis could sell and buy foreign exchange to money changers in Pakistan even if proceeds are earned through corruption and tax evasion.
Tax officials explained additional provisions were being proposed in the finance bill to empower a tax commissioner to freeze any domestic asset of a person living abroad for 120 days. This was to meet the requirements of the Organisation of Economic Cooperation and Development (OECD) under the Financial Action Task Force (FATF).
Also, the transfer of funds abroad by understating the value of exports, overstating the value of imports or vice versa was also a form of money laundering and was on the radar of the FATF.
The Senate panel has also rejected a number of other budgetary measures, including the treatment of mis-declaration of the value of imports and exports as money laundering with 10-year imprisonment and giving powers to prime ministers, instead of the federal cabinet, to appoint judges of customs courts.
Also, the centre is now seeking to take away the jurisdiction from the provinces over general sales tax on restaurants because it believed the restaurants were selling goods and not services.
The FBR chief has sought a formal legal opinion on the subject from the Ministry of Law — a move Senator Farooq Naik, who is the chair of the Senate finance panel, warned was a constitutional issue in terms of the 18th Amendment.
Published in Dawn, The Business and Finance Weekly, June 24th, 2019