Huzaima Bukhari & Dr. Ikramul Haq
On September 18, 2020, Federal Board of Revenue (FBR) released ‘Parliamentarians’ Tax Directory for Tax Year 2018’, ‘Tax Directory of all Taxpayers for Tax Year 2018’ and ‘Tax Directory Analysis for Tax Year 2018’. The data contained in the directories for tax year 2018 in majority cases is for fiscal year 2017-18 (ending June 30, 2018) and in the case of some taxpayers having calendar year as tax year for year ending December 31, 2017. The Tax Directory Analysis for Tax Year 2018, released for the first time since start of publishing directories for tax year 2013, presents figures of return filers and their contribution, category- wise as well as on provincial, region, city and leading markets basis. It covers returns received up to September 14, 2020. Returns for tax year 2018 became due after the coalition Government of Pakistan Tehreek-i-Insaf (PTI) came into power. It therefore reflects on the performance of PTI Government to enforce compliance and not that of the government of Pakistan Muslim League (Nawaz)—PMLN.
In the Finance Act, 2018, presented by the PMLN and passed by the National Assembly on May 18, 2018, two laws relating to amnesty were adopted: Foreign Assets (Declaration and Repatriation) Act, 2018 and Voluntary Declaration of Domestic Assets Act, 2018. Those who availed these amnesties are included in Tax Directory Analysis for Tax Year 2018. The PML ending its tenure on May 31, 2018 was adamant to pass these amnesties. Through 82,889 declarations both these amnesties fetched only Rs. 124 billion (domestic Rs. 77 billion and foreign Rs. 47 billion), though the then Adviser to Prime Minister on Revenue, Haroon Akhtar, claimed that collection would not be less than US$ 5 billion for foreign assets alone. In the Finance Act, 2019, the PTI government also passed Asset Declaration Act, 2019, earlier promulgated on May 15, 2019, as Asset Declaration Ordinance, 2019. The PTI scheme was for undisclosed assets, held in Pakistan and abroad, acquired up to the 30th June, 2018 or expenditure incurred or benami assets held, and date of compliance was June 30, 2019. The returns received under this scheme must also be appearing in Tax Directory Analysis for Tax Year 2018 as it claims the deadline of September 14, 2020 of all returns received for tax year 2018.
As per previous practice, tax directories for tax year 2018 should have been released by the end of February 2018. However, the PMLN Government delayed it as amnesties were on its top agenda. These were announced on April 9, 2018 and subsequently made part of Money Bill of 2018. The other reason was to conceal abysmal performance as growth in overall tax collection for fiscal year 2017-18 was 0.4% less as compared to the fiscal year 2016-17 and net collection of direct tax was at Rs. 1445.4 billion registering a negative growth of 5.9 % over the collection of Rs. 1536.6 billion in fiscal year 2016-17.
Earlier on February 22, 2019, the PTI Government published two tax directories—‘Parliamentarians Tax Directory’and ‘Tax Directory for the year ending 30 June 2017’ (these were tabulated from returns filed manually and electronically till February 21, 2019 for tax year 2017). The PTI Government could have released directories for tax year 2017 and 2018 simultaneously, but it delayed tax directories for 2018 for several months to show “impressive” performance by taking into account returns filed up to September 14, 2020 for tax year 2018.
According to Active Taxpayers’ List (ATL) updated by FBR on March 1, 2019, total number of returns filed for tax year 2018 was 1,596,340. According to FBR Year Book 2018-19, it was 2,666,256 [Table 7, page 10]. Now, Tax Directory of all Taxpayers for Tax Year 2018 reveals that total number of income tax returns received till September 14, 2020 for tax year 2018 was 2,852,349. However, neither the extra revenue received through belatedly filed returns is not mentioned, nor total collection figure is revealed on the basis of which share percentages are worked out. The bifurcation given is: companies 44,609 (1.56% of total filers with tax contribution of 55.84%), AOPs 64,336 (2.26% of total filers with tax contribution of 8.49%), non-salaried individuals 1,542,088 (42.12% of total filers with tax contribution of 14.66%) and salaried individuals 1,201,316 (54.06% of total filers with tax contribution of 21.01%). Obviously all those who filed returns for tax year 2018 after June 30, 2019, tax paid if any, would be accounted for in current financial year [2020-21].
According to a report [Tax directory of companies: new data, old story, Business Recorder, September 22, 2020]: “This is also visible in the table for new filers where nearly 81 percent of first-time filers filed a return of zero rupees. For clarification sake, first time filers or new filers are assumed to be those companies whose National Tax Numbers were found in FY18’s tax directory but not found in FY17’s tax directory. Understandably, this may not be the most tenable assumption, but in the absence of detailed analyses presented by FBR, this should shed at least some light on the expansion of the so-called tax net”.
According to FBR Year Book 2018-19 : “The trend for filing of income tax returns has not been satisfactory in Pakistan. Keeping in view very low compliance, FBR had initiated a Broadening of Tax Base (BTB) drive few years ago, which has *now started paying dividends in shape of growth in the number of filers. The income tax returns which were just 1.5 million in TY 2016 have crossed the two million mark first time in the history of FBR. During TY 2017 the number of income tax filers reached to 1.9 million and in TY 2018 2.2 million (Table 7). During TY 2018 the number of return filers increased by 17.1% or 316,526 in absolute terms. This performance in terms of number of returns is satisfactory but payment with returns has a meager growth of 3.0%, which is the matter of concern”.
*Wrongly appearing as “not” in the directory
It is proved through analysis that most of the new filers have contributed negligible or zero payment with returns just to be on ATL to take benefit of waiver or lower tax under withholding tax regime. The same was the case for tax year 2017 as delay of publishing tax directory gave a chance to FBR to include all the returns filed for tax year 2017 till February 21, 2019—long after the last date of filing of returns for all categories of the taxpayers, namely, companies, Association of Persons (AOPs) and individuals. In this way, the crafty officials ably manage to cheat the parliamentarians, public and even international lenders and donors.
Once again, the PTI Government deferred publication of tax directories for tax year 2019 that could have been released along with those for tax year 2018 as already long overdue. The target assigned to FBR for fiscal year 2018-19 was Rs. 4435 billion, which was revised downwards twice [first to Rs. 4398 billion and then to Rs. 4150 billion].According to FBR Year Book 2018-19, FBR collected Rs. 3828.5 billion that was “0.4% lesser than the collection of previous fiscal year”. This pushed the fiscal deficit to record 8.9% of GDP (Rs. 3.45 trillion). For fiscal year 2019-20, it was reduced to 8.1% of GDP (Rs. 3.37 trillion) by blocking refunds of Rs. 710 billion. The PTI government during its first two years in power incurred tax expenditure cost of Rs. 2.12 trillion [Analysing ‘tax expenditure’, Business Recorder, June 26, 2020].
The top officials of FBR at the time of launching electronic version of tax directories for tax year 2018, as in the past years, tried to give an impression that “marvellous” progress was achieved—the same modus operandi adopted by them in earlier years. They claimed “substantial growth” in tax collection and the number of return filers, but the facts extracted from tax directories for tax year 2018, their own Year Books and various Press reports speak otherwise. Some salient features are summarised below:
- Only five lawmakers paid 60% of the total amount paid by members of the lower and upper houses of parliament in taxes.
- 45 members of parliament did not even submit their income tax returns.
- Of the 401 National Assembly and Senate members, who submitted their income tax returns for 2018, 70 paid more than Rs. one million.
- There were over 90,000 companies registered with Securities & Exchange Commission of Pakistan (SECP) as on 30-06-2018 but only 44, 609 filed returns.
- There were also less than 3,400 companies that paid more than Rs. 7 million income tax.
- Of total number of return filers, 36.6% filers (1,004,221) showed income less than Rs. 400,000,
- In the bracket of taxable income from Rs. 400,001 to Rs. 500,000, total filers are 433,133 or 15.79%.
- 441,312 filers constituting 16.09% fall in the slab between Rs. 500,001 and Rs750,000.
- 15.4% (422,349) fall in the bracket from Rs. 700,001 to Rs. 1,500,000.
- 153,645 return filers or 5.6% of total filers are in the range of Rs. 1,500,001 to Rs. 2,500,000.
- Those falling between Rs. 2,500,001 to Rs. 4,000,000 are only 59,276 or 2.16% of total return filers.
- In the bracket between Rs. 4,000,001 to Rs. 6,000,000, total filers are 21,934 that is only 0.80% of total filers.
- In the last slab exceeding Rs. 6,000,000 and above, there are 22,593 filers or just 0.82% of total filers.
The same position prevailed for tax year 2017. Out of total registered companies, only 42% (37,130) filed returns! If FBR cannot enforce section 114(1) of the Income Tax Ordinance, 2001, whereby all companies are obliged to file returns, then what other evidence is required for its ineffectiveness and incompetence? The SECP has complete data of all the registered companies. Section 114 binds even loss bearing and dormant companies to file returns. It is also a matter of fact that over 200,000 salaried persons working in various government departments though having taxable income opted not to file returns! The same is the case for private sector. About 5 million business houses opted to remain non-filers though having annual taxable income exceeding Rs. 400,000. It is worthwhile to mention that they are paying various withholding taxes, especially through electricity and mobile bills, and FBR has their complete data!
The province/region wise details of total filers and collection are provided by FBR in Tax Directory Analysis (for year ending 30 June 2018 on the basis of income tax returns filed up to 14 September 2020). However, it has not been made clear by FBR in Tax Directory Analysis that whether contribution of provinces/regions/cities is in respect of year ending 30 June 2018 that is taken for distribution under National Finance Commission Award or on the basis of returns filed up to 14 September 2020 that is even after 26 months and 15 days of the close of period for tax year 2018. This vital point has been ignored. The complete data of filers and contribution by category, province, region and that of major markets is available at:
Parliamentarians’ total tax payment is Rs. 574,051,288 as per column 3 (tax paid). In column 4 (Total Tax Paid by AOP in which Taxpayer is a member) tax paid by business entity is given but share of legislator is not disclosed in the said Association of Person (AOP) that is added for rate purpose, if tax is paid by an AOP! In the beginning of Tax Directory Analysis it is clarified that “certain Parliamentarians, whose names are marked by* have share income as Members of Associations of Persons. Since, Association of Persons pay tax as a separate entity, such share is not taxable in the hands of the Members”.
The Adviser to Prime Minister on Finance & Revenue, Dr. Abdul Hafeez Shaikh, while launching the tax directory, said that 311 MNAs and 90 senators submitted their income tax returns for the year 2018 and paid Rs. 800 million. He quoted a wrong figure ignoring the difference between column 3 and 4 of Parliamentarians’ Tax Directory for Tax Year 2018. For example, Industries and Production Minister Hammad Azhar paid Rs. 22,445 as per column 3 but tweeted that his partnership firm paid Rs. 59,421,700 (as mentioned in column 4), in which his contribution was Rs. 18 million on account of his shareholding.
FBR also failed to disclose the total tax paid by all taxpayers as per data contained in Tax Directory of all Taxpayers for Tax Year 2018, so how one can determine share percentages mentioned in FBR in Tax Directory Analysis of various categories of taxpayers, provinces, regions and cities etc without knowing the base number (total collection) from which these are calculated! Nobody has raised this point! For example, FBR in Tax Directory Analysis in respect of returns filed up to 14 September 2020 shows income tax collection from 496 major cities. The total of which comes to Rs. 1,026,156,746,886. However, we cannot determine its percentage to total tax collection as this figure is not revealed in documents released on September 16, 2020.
It is clear from ‘Parliamentarians’ Tax Directory for Tax Year 2018’, ‘Tax Directory of all Taxpayers for Tax Year 2018 and Tax Directory Analysis that the rich and mighty segments of society and traders are not paying income tax due from them but on the contrary millions not earning taxable income are subjected to withholding tax of 12.5% as mobile use. According to data available on Pakistan Telecommunication Authority (PTA), the total number of unique cellular subscribers (having more than one SIM and actively paying bills) was 90 million during the fiscal year 2017-18 whereas return filers for tax year 2018 up to 14 September 2020 were only 2,852,349. How many of these are taxable is not revealed by FBR. The majority comprises those having below taxable income or nil income, like students still dependent on parents but having mobiles. Will FBR give refunds to all of them if their income is below taxable limit?
The latest data at website of PTA shows the total number of subscribers as on July 31, 2020 at 167 million (78.4% teledensity), out of which 81 million are 3G/4G subscribers (39.2% penetration), 3 million basic telephony users (1.1 teledensity) and 83 million broadband subscribers (36.9 penetration). Amongst them about 95 million are unique subscribers. All are subjected to 12.5% advance and adjustable income tax. FBR should determine true tax base from the data of about 100 million unique mobile users that how many are liable to income tax using details of their calling patterns, bills, handset ownership status, assets, travel abroad, payment of utility bills, fees for children etc. Sadly the intent and willingness is not there and also it is easier to tax 167 million or 100 million clients and make telecoms responsible for collecting and depositing such funds. This shows the apathy and abdication of their duties by FBR officials, who will say this is the law passed by Parliament and upheld by the courts.
Those below taxable limit, many of whom benefitted from Ehsaas Emergency Cash Programme, during lockdown due to Covid-19 endemic, though paying tax at source as mobile users, cannot be forced to file tax returns. This will be against the supreme law of the land that is Article 4(c) of the Constitution which says: “no person shall be compelled to do that which the law does not require him to do”.
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 FBR to stop forthwith the vicious propaganda that Pakistanis are tax dodgers! In the existing financially 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.
In Pakistan, the ultra-rich are avoiding tax obligations whereas millions having no income or incomes below taxable limit have been forced to pay advance tax. It is gross violation of their fundamental rights. Why should the poor people engage a tax adviser to file return and pay money to get a paltry amount of refund? FBR’s statistics thus do not present the correct figures regarding income tax payers in Pakistan. They are only taking data on the basis of returns filed. It is their duty to issue notices to those having taxable income, paying tax at source, yet not filing returns. Out of total income tax collection during 2016-2019, the percentage of withholding taxes and voluntary payment is 90%. It proves beyond any doubt that blame shifted to business houses, especially SMEs, for alleged non-payment of taxes, is just eyewash on behalf of FBR to hide its own inefficiency and incompetence.
In the wake of heavy economic toll of Covid-19 endemic, small and medium enterprises (SMEs) already heavily taxed through withholding tax mechanism are victims of highhandedness of tax laws and officials at federal and provincial level. 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 (ICT) 17% federal excise duty [FED], plus 10% service/maintenance charges. No relief is given in the Finance Act, 2020 from advance tax of 12.5% on mobile and internet users or 17% FED in ICT, especially in the event of the shift of academia to online classes and professionals forced to work from home. In the provincial budgets for fiscal year 2020-21 of Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan as well, the high rate of tax is maintained for telecom sector.
The crumbling and corrupt tax apparatus is the root cause of the present scenario. Tax officials persistently squeeze and penalise existing taxpayers on the one hand but on the other, join hands with and protect big tax evaders though amnesties and immunities. The massive over and under invoicing is not possible without their connivance.
It is FBR’s failure to enforce provisions relating to filing of returns by people having taxable income, for which it cannot blame others. However, it also reflects on the legislators that give extraordinary tax exemptions and immunities to the affluent classes. The PTI Government must also look into elite capture and take into account the fact that as many as 135 persons, named in the OECD database, availed the 2018 tax amnesty scheme of the PML-N and declared Rs. 62.4 billion in assets. They paid only Rs. 2.9 billion, whereas, their actual liabilities without the tax amnesty could have been Rs. 43.7 billion, thus getting a relief of Rs. 40.8 billion from the last government. About 56 people, whose data was shared by the OECD, availed the PTI’s tax amnesty scheme and declared Rs. 31.8 billion worth of assets. They paid only Rs. 1.7 billion and got a relief of Rs. 20.6 billion.
It is high time that FBR should be insulated from all political and other pressures and be made an effective body to enforce tax laws across the board without fear and favour, justly and not through coercive measures. There should be a proper system of check and balances and officers indulging in erratic assessments should be subjected to punitive action and awarded pecuniary damages from their own pocket by an independent authority after the lapse is established by the final fact finding appellate authority
The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).