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Covid-19, the poor & tax extortion

Dr Ikramul Haq

In the most difficult times arising out of Covid-19 outbreak and lockdown, all over the world the governments are going for relief packages and tax incentives to mitigate the financial toll faced by all, especially the poor and the weaker segments of society. On the contrary, our politicians, technocrats and bureaucrats sitting in the Ministry of Finance (MoF) and Federal Board of Revenue (FBR) are continuing with oppressive taxation that has a definitive link with rising poverty. We have a shameful ranking in the latest Human Development Index (HDI) being 152nd among 189 countries and the lowest in all other countries in South Asia. It is highly lamentable, especially when millions not having taxable income are still being robbed by MoF/FBR through numerous withholding taxes, and then calling the entire nation tax chor [cheat]. 

About 95 million unique mobile users [as per website of Pakistan Telecommunication Authority (PTA) total cellular subscribers as on December 31, 2019 were 165 million, but many have multiple and/or dormant SIMs], after vacation of stay by Supreme Court on April 24, 2019 in Human Rights Case (HRC No. 18877/2018), are paying 12.5% advance income tax. The detail of indirect taxes paid by them is 19.5% sales tax on services to all the four provinces, for users in Islamabad Capital Territory 17% federal excise duty, plus 10% service/maintenance charges. According to submission of PTA, during the period of stay [June 11, 2018 to April 23, 2019] by Supreme Court, Rs. 90 billion tax was not collected by mobile companies.   

In extreme days of financial hardships, millions of mobile users, some of whom are even declared eligible for Ehsaas Emergency Cash Programme, are shamelessly subjected to extortion by the Federal Government in the name of advance income tax. This is the real dilemma of Pakistan—those having enormous incomes and assets are being offered frequent and generous amnesties/immunities and the vast majority of population, even those living below poverty line, are forced to pay oppressive taxes. Adding insult to injury, they do not get in return even basic amenities of life (clean drinking water etc), what to speak of free education/health care, decent living, and affordable public transport. 

According to 2017 official census, our population [provisionally] was 207.7 million (by March 21, 2020, it was estimated at 220 million). Dependent population of children under the age of 15 years as on June 30, 2019 was 35.4% while 4.2% people were above 65 years. Out of total population at present, 40 million are below poverty line earning less than US$ 2 per day. Out of 75 million labour force—42.3% is rural-based either earning below taxable income or agricultural income falling outside the ambit of Income Tax Ordinance, 2001. The FBR, in a Press release, claimed that till expiry of deadline of February 28, 2020, it received 2,472,609 income tax returns for tax year 2019 whereas it collected 12.5% advance/adjustable income tax from 95 million unique mobile users alone! It proves that millions are paying advance income tax but are not legally required to file returns having below taxable income.

According to Household Integrated Economic Survey (HIES) 2018-19, released by Pakistan Bureau of Statistics (PBS) on April 21, 2020, average monthly income stood at Rs. 41,545 in 2019, higher by 13.6% or Rs. 4,883 over the 2016 period. The growth in income was slightly less than the growth in expenditure, which suggested that people hardly met their expenses from their income. The income of the richest was 273% more than the income of the poorest with usual disparity in expenditure between the lowest quintile and the highest one–the highest income group spent Rs. 58,206 per month, 168% more than the lowest group.

According to PBS, Pakistan Social and Living Standards Measurements (PSLM) 2018-19 “is the eleventh round of a series of surveys, initiated in 2004 and the current round of PSLM (Social & Household Integrated Economic Survey (HIES) at provincial level survey covered 24809 households and provide detailed outcome indicators on Education, Health, Population Welfare, Housing, Water Sanitation & Hygiene, Information Communication & Technology (ICT), Food Insecurity Experience Scale (FIES) and Income & Expenditure”.

Our rulers live lavishly, while nearly 25 million children are out of school in Pakistan in gross violation of Article 25A of the Constitution—see detailed judgement of Supreme Court [2014 SCMR 396 re Petition regarding miserable conditions of schools]. Our successive governments have been overtaxing the poor while giving extraordinary benefits to the rich. Abuse of taxpayers’ money for personal comforts and luxuries of the elites—militro-judicial-civil complex and politicians in power—is the main malady, yet the successive governments, instead of withdrawing the same, keep on yearning for “more taxes” [this is the insatiable desire!] and ill-informed hosts and experts (sic) in TV talk shows support it! Irrational taxes have failed to bridge monstrous fiscal deficit, giving rise to horrific level of internal/external debts soon reaching 90% of GDP.

Offering unprecedented amnesties and asset-whitening schemes to the ultra-rich, who criminally avoid tax obligations and taxing the millions having incomes below taxable limit, is a gross violation of Article 3, 4 and 25 of the Constitution. Why should millions earning income below taxable limit pay 12.5% advance income tax? Why should they hire a tax adviser to file their return to just get refund knowing well that the cost of doing this would be much more than the refundable amount, with no guarantee that FBR would actually pay it!

It is highly deplorable that the poor and small businessmen, while immensely suffering due to lockdown, are still compelled to pay advance income tax on mobile and commercial electricity use under sections 235 and section 236 of the Income Tax Ordinance, 2001. These taxes should be waived for all those having income below taxable limit using database of Ehsaas Emergency Cash Programme.

The extreme injustice in tax system imposes on a widow and a senior citizen 10% income tax on gross yield earned from Bahbood [welfare] Certificate or Pension Account of National Saving Scheme. On the other hand, rich absentee landowners, many sitting in assemblies, are paying meagre or no tax on their colossal agricultural income.

Prime Minister must take note of extreme injustice inflicted on millions to pay advance income tax when they are not chargeable to tax and ask MoF/FBR to stop forthwith the vicious propaganda that Pakistanis are tax dodgers! In the existing financial hardship days, advance income tax on mobile use and commercial electricity bills by those having below taxable income must be waived immediately, and amounts already collected for all previous years should be refunded without filing of returns using the same data portal as for Ehsaas Emergency Cash Programme. It is hoped that Dr. Sania Nishtar will brief the Prime Minister on how FBR is fleecing the poor through extortionary taxation! This is the worst one can expect from a government whose head keeps on making claims to rebuild Pakistan on the principles of Riyasat-i-Madina.  

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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)    

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