The Federal Board of Revenue has told the Public Accounts Committee that 3.8 million people do not pay income tax, but live luxurious lives, residing in upscale areas and going abroad twice a year. In testimony to the committee, FBR Chairman Ali Arshad Hakeem on Wednesday also briefed that the FBR had prepared two amnesty schemes, one to bring these people into the tax net, another to make Pakistanis bring back money that was kept abroad. He was responding to audit objections about non-recovery of taxes. The committee noted that the FBR was not such an honest department that its officers were beyond reproach and its audit department could be relied on to remove these objections.

The FBR Chairman also disclosed some of corporate sector’s shenanigans, such as the carrying on of several businesses under one registration. Mr Hakeem said that companies would be made to disclose their assets. Another indication of corporate exertion of strength was the SRO culture mentioned by a committee member as causing losses to the country. This was an indication of a much more fertile field for the FBR than individual taxpayers. Though the escape of individuals from the tax net is by no means permissible, the companies must also pay their fair share of tax.

One issue the PAC is unlikely to tackle, that is the protection accorded to agricultural incomes, which are heavily represented on both sides of the partisan divide. That protection is one of the most important hurdles to the expansion of the tax net. Another issue that needs consideration is that expansion of the tax net is part of the advice by the Washington Consensus forPakistan. That is not for the FBR to raise, but it must administer the law as it stands justly and equitably. That includes making sure that it is staffed by officials who are not just competent, but also honest. The FBR Chairman should realise that whereas the committee is likelier than not to defend the privileges of the legislature from which it is derived (that is, freedom from liability to taxes), it can serve as his ally in ensuring that FBR officials stay honest, by dealing with audit objections in right earnest.