The SRO culture

Over the years much has been written and spoken against the SRO culture but it has continued to flourish regardless. As ordered by the government of the day and sometimes on its own, FBR keeps issuing SROs to cover specific cases and sectors. An abbreviation for Statutory Regulatory Order, SRO is simply an instrument of financial governance to regulate the import regime. But knowledgeable quarters are of the opinion that it is excessively used and, sometimes, without any justification.

The Public Accounts Committee (PAC) was informed last year that the SRO culture had cost the national exchequer about Rs650 billion in the form of exemptions and concessions granted to various parties.  According to the latest economic survey, the amount lost through exemptions and concessions totalled around Rs900 billion in the last five years. It has been pointed out that in most cases the SROs are company specific rather sector-specific, which violates the principle of justice and fair play. For instance, SRO 57(I)/2012 issued in January 2012 reduced the turnover tax by 50 percent — from 1 percent to 0.5 percent — for Pakistan International Airlines, giving it  an unfair advantage of about Rs500 million over other airlines.

Tax experts are of the opinion that there are hundreds of iniquitous and lop-sided SROs which need to be reviewed for their inconsistencies with previous tax laws and orders and for infringing the principle of fair competition. According to one estimate, more than 4,500 SROs have been issued over the last few decades, the bulk of them during the Musharraf era. These SROs relate to income tax, sales tax and FED. It has been noted that the number of SROs goes up during the military regimes which rule by fiat and authoritative orders. But records show that hundreds of SROs have also been issued by FBR under elected governments.

Given the fast pace of economic changes around the world and their impact on economies of developing countries, a resort to SROs  sometimes becomes necessary to protect specific sectors. But, having said this, their indiscriminate use cannot be condoned, especially when they are designed to benefit a particular firm or group. To ensure that SROs are issued in a transparent manner and are not misused, it is important that clear rules and regulations are made and objective criteria and strict conditions are laid down governing their application. As a further safeguard, a special committee comprising representatives from the Ministries of Finance and Commerce should be formed to scrutinize each case in detail before giving its approval for the issuance of an SRO. The committee can also be tasked to undertake a comprehensive review of the existing corpus of SROs to verify their legitimacy and need.