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Massive misuse of DTRE

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EDITORIAL  : The Auditor General of Pakistan has unearthed what has been reported as the massive misuse of a Duty and Tax Remission for Exports (DTRE) scheme. The culprits, according to the AG s office, are the exporters who availed tax concessions on the import of raw materials/inputs without providing documentary proof. Abuse is quite obviously not possible without the Federal Board of Revenue (FBR) staff being complicit in the misuse .

The introduction of the DTRE scheme was premised on sound economic principles: to provide incentives to the country s exporters who, it was correctly argued, would consequently be enabled to increase the country s foreign exchange earnings and thereby provide critical support to the balance of payments. Considering that the government was struggling with a crisis of foreign exchange reserves that compelled it to go on the International Monetary Fund (IMF) programme in 2008, the scheme must have appeared as sound economic strategy.

What it failed to take note of was the culture prevalent in the FBR, acknowledged by former Finance Minister Shaukat Tarin as the most corrupt entity in the country and the failure of the four finance ministers, including the incumbent Dr Hafeez Sheikh, to take effective measures to combat corruption within FBR as a more appropriate measure to meet the government s objectives with respect to revenue generation, mainly because the staff of FBR fall within its own ambit.

It is fair to say that Pakistani exporters have been labouring under a world-wide recession that reduced the demand for our consumer-based exports as well as a severe energy shortage that continues to compromise the capacity of the productive sector to operate at capacity. In addition, the high-interest rate regimen has kept the cost of borrowing by the productive sector high, which had its own negative fallout. These three critical factors need to be dealt with on an emergent basis and the onus to ensure that these challenges are met rests with the federal government.

Thus, it is the government s responsibility to ensure that in all cases where there has been misuse of the facility, the name of the attendant FBR officer be identified and an investigation undertaken and, if found complicit, appropriate measures must be taken against that staff member. Exemplary action against the offending FBR staff members is the normal way used by tax collecting authorities around the world to ensure that corruption is at a minimum, which would automatically reduce the misuse of the facility by the exporters.

There is also a need for the government to focus on the cost of non-imported basic inputs. The two almost universal basic inputs for most exporters are electricity and cost of borrowing. Thus any strategy to promote exports must contain an element of ensuring that input costs are comparable to that of our competitors. Unless the federal government can ensure some parity between the costs borne by our exporters with those borne by competitors in neighbouring countries, our exports would continue to suffer.

What must also be borne in mind is that the refund schemes that the government has periodically offered the productive sectors have been invariably compromised by the delay in reimbursement, due no doubt to the government s perennial resource constraints. For effectivity of any refund scheme, it has to be prompt as that would enable the exporter to have the funds available for meeting his other costs.

What is unfortunate though is that with the rising demand for funds by the country as a consequence of the floods, with the tax for the Internally Displaced Persons (IDPs) already successfully challenged in the courts and the FBR considering refunding that amount, the tax system as well as its administration, is coming under increasing criticism domestically as well as internationally. This judgement would obviously compel the country s economic managers to revisit their earlier proposals to levy a one-time flood tax - be it on income, imports, sales, or urban property. It is not yet clear what the Finance Ministry will opt to do, either in terms of raising revenue as a complete set of alternative proposals is available with it, courtesy the FBR, and where to slash expenditure, an exercise to this effect already carried out by the Planning Commission and submitted to the Ministry for final approval.

 

Courtesy: Business Recorder


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