Sros-Distortions in the Tax System

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Applied Taxation

SROs-Distortions in the tax system

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 Abstract

The Pakistani economy needs a stimulus, a boost, so that it can atleast escape the bonds of the vicious cycle of debt. This paper will discuss how the Pakistani economy has the capacity to be self-sufficient, that is, to earn revenue from taxes to finance their expenses. However, with the politically biased and unregulated tax imposition and collection system in place, the Federal Board of Revenue misuses its powers to issue Statutory Regulatory Orders (SROs), and grants tax exemptions to some of the most lucrative industries. As a result, the amount of tax collected by the FBR is not even remotely comparable to the tax revenue potential of Pakistan. An analysis of the tax revenues generated over the past five years will be made and particular instances of major SROs issued during each inclusive time period will be highlighted.

Legal sanctity of SROs extending waivers, concessions, and exemptions
Constitutional provisions

According to Article 77 of the Constitution, tax is to be levied by law only. However, it further adds that the federation is given the authority to issue SROs under the authority of the Act of Majlis-e-Shoora (Parliament). These SROs have a significant impact on the revenue as a certain industry is given the leverage to bend the law regarding taxes.

Certain laws from different Acts are used to form SROs to grant exemptions to a few influential people who are indirectly manipulating the law to gain an unfair advantage. Section 19 of the Customs Act, 1969 is used by the FBR to exempt whole or part of customs duty subject to certain conditions. On the other hand, Section 20 is often used to grant exemption on whole or part of customs duty on case to case basis under circumstances of exceptional nature; Powers of Section 202 are used to write off arrears and Powers under Section 219 are used to make rules for carrying out the purposes of this Act. Furthermore, in the Sales Tax Act, 1990, powers of Section 3 are used to levy sales tax at specific rates at import stage and supply thereof. Section 4 is used to declare certain goods or class of goods on which sales tax is charged at the rate of zero percent at import stage and supply thereof; Powers of Section 13 are used to exempt sales tax on the goods or class of goods at import stage and supply thereof; Powers of Section 34A are used to exempt from penalty and default surcharge and Powers of Section 71 are used to issue special procedure for scope and payment of tax, registration, book keeping etc. In case of Federal Excise Duty Act, 2005, powers of Section 5 are used for allowing zero rating of duty and Powers of Section 16 for granting exemptions in whole or part of duty at import stage or on local supplies. (Abbasi) All of these laws are maneuvered cleverly to form SROs which serve as a lawful means of evading the tax.

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