Dr. Ikramul Haq
Our tax bureaucrats keep on maligning the citizens as tax dodgers, while the so-called “informed” analysts and all-knowing (sic) TV anchors join the bandwagon with often-repeated popular jargon that only “1% of the population pays income tax”. This fallacy has become Gospel’s truth in Pakistan that nobody is ready to refute. This is total fabrication that exposes the hollowness of all those who subscribe to it. The reality is that about 100 million Pakistanis are subjected to 12.5% advance/adjustable income tax as mobile users. The collection under withholding income tax regime was Rs. 1091.5 billion out of total direct tax collection of Rs. Rs. 1513.8 billion in fiscal year 2019-20, according to official source: FBR Year Book 2019-20. The advance tax paid was Rs. 351 billion and with returns Rs. 61 billion. The FBR collected only Rs. 61 billion (arrears of Rs. 14 billion and out of current demand Rs. 47 billion) with its own efforts, which is only 4% of total collection.
The reality is that millions pay advance income tax under the Income Tax Ordinance, 2001 despite the fact that majority of them has no income or income below taxable limit. Law does not require them to file returns. After extorting billions from them, Federal Board of Revenue (FBR) is hiding the facts and its failure to tax the ultra-rich. In the highest slab of income tax, the individual payers are less than 25,000 showing income exceeding Rs. 6 million. Forcing a person not earning taxable income to file tax returns is a blatant violation of fundamental rights guaranteed under the Constitution: Article 4(c) says that “no person shall be compelled to do that which the law does not required him to do”.
Why should a person file tax return when not having taxable income? Why should any citizen incur cost to get refund of money extorted and face harassment? The civil society and media have become so insensitive they are not agitating against FBR’s highhandedness and violation of fundamental rights. They have accepted unconstitutional withholding taxes as fait accompli. The nations that demonstrate such apathy about their rights end up endorsing and promoting injustice and the exploiters. The courts, tax/other bars, supposed to safeguard the rights of citizens against such violations of Constitutional provisions, are also guilty of inaction and silence.
There exists a wrong notion that traders do not pay income tax. All traders, filer or non-filers, have been paying advance income tax with electricity and mobile bills. Section 235(4)(a) of the Income Tax Ordinance, 2001 says that in the case of a taxpayer other than a company, tax collected up to Rs. 43,200 of a commercial electricity user shall be treated as minimum tax and no refund shall be allowed. Law recognises payer of advance income tax with electricity bill as commercial or industrial electricity user as “taxpayer”. If any taxable person is not filing return, notice for filing the same can be issued by Commissioner. Is there a justification to impose on a person having commercial electricity connection, minimum tax paid up to Rs. 43,200 in a year with annual electricity bill of Rs. 360,000? This amount is non-refundable even in cases suffering losses, especially in the wake of Covid-19 endemic.
FBR, in its recent analysis Tax Directory Analysis for Tax Year 2018’ portrayed traders as tax evaders after extorting billions from them along with electricity bills. It is an irrefutable fact that billions have been squandered by FBR as extortionist agency from small and medium enterprises (SMEs) under section 235(4)(a) and section 236 of the Income Tax Ordinance, 2001, during the last many years! The government should remove numerous withholding provisions and get returns from all those having taxable incomes. It is unjust to impose over 60 withholding tax provisions creating hardship for students, widows, minors and the retired having no taxable income.
Majority of the mobile users who paid advance/adjustable tax having no taxable income if desirous of refund, have to file a tax return electronically that is of a great problem even for professionals what to speak of the common citizen. They also fear becoming victims of the excesses of FBR officials and exploitation at the hands of unscrupulous tax advisers if they do so. FBR till today has failed to tell the nation what happened to nearly 3 million rich people about which NADRA claimed it had solid information. These ultra-rich are offered amnesties and even those not availing these are not filing returns or paying meagre tax (top 10% rich paid only 5% of total income tax whereas in majority countries their contribution is above 75%). This confirms beyond any doubt the ineffectiveness and incompetence of FBR.
About 65% of our population being young and yet not employed is not chargeable to tax. FBR is extorting income tax from 100 million unique mobile users (having more than one number and active users). The latest data at website of Pakistan Telecommunication Authority (PTA) shows the total number of subscribers as on July 31, 2020 were 167 million, out of which 81 million are 3G/4G subscribers, 3 million basic telephony users and 83 million broadband subscribers. At present, the entire taxable population and even those having no income or below taxable limit are paying income tax at source as mobile users, yet FBR is engaged in a vicious propaganda that people of Pakistan are tax cheats. This is highly lamentable, especially when 4 million using commercial/industrial electricity connections are paying advance income tax under section 235 of the Income Tax Ordinance, 2001. In the case of SMEs, Rs. 43,200 in a year paid with annual electricity bill of Rs. 360,000 is treated as minimum tax even if they have income below taxable limit or less than Rs 930,000 on which this tax becomes payable.
Why FBR wants tax returns from even those who have no taxable income? Certainly, more “filers” means more “speed money”, more earnings for unscrupulous tax advisers (sic), majority of whom comprises lower staff and even some officers of FBR working in the evening with tax consultants or having their own independent offices. FBR stalwarts have failed to check this malpractice though pointed out repeatedly by many and even warnings (sic) issued officially.
It is an undeniable fact that FBR has miserably failed to get due tax from the rich and thus its main emphasis is on withholding taxes, advance tax and tax with returns. We have an army of employees in Inland Revenue Service (about 15,000) that hardly collect 5% of total direct taxes with their own efforts! But they make the life of honest taxpayers miserable and this is the main reason behind the absence of tax culture in Pakistan. In the face of these facts do we need an agency like this that cannot even justify its financial viability and that has to pay billions to taxpayers as refunds? FBR officials confessed before Standing Committee on finance & revenue that as on June 30, 2020 Rs. 710 billion (sales tax Rs. 142 billion and income tax Rs. 568 billion) was outstanding.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS).