Lack of initiatives & innovations
Huzaima Bukhari & Dr. Ikramul Haq
The adoption of Finance Bill 2020 on June 29, 2020 and exceeding the target by the Federal Board of Revenue (FBR) for fiscal year (FY) 2019-20, after blocking refunds of billions, was claimed as an achievement by the coalition Government of Pakistan Tehreek-i-Insaf (PTI). During the debate on budget and Finance Bill 2020, the PTI Government faced stern resistance from the Opposition. No doubt, during the last quarter of fiscal year 2109-20, the FBR worked under extraordinarily unfavourable circumstances due to onslaught of Covid-19 endemic and complete lockdown for a whole month and, thereafter, partial lockdowns till the end of June 30, 2020.
The FBR in a Press release issued on June 30, 2020 claimed as under:
“FBR has collected revenue of Rs. 3989 billion in FY 2019-20 which is Rs. 82 billion more than the revised revenue target of Rs. 3907 billion set for the outgoing Fiscal Year. The net revenue collected in FY 2018-19 was Rs. 3826 billion.
The gross revenue collected in the FY 2018-19 was Rs. 3895 billion which has surpassed 4 trillion in FY 2019-20 for the first time in the history making the total gross revenue as Rs. 4123 billion.
Despite outbreak of Corona Virus, there was growth of 5 percent in Income Tax, 9 percent in Sales Tax, 7 percent in Excise Duty and negative growth of 8.4 percent in Customs Duty. In FY 2019-20, FBR has issued refunds of Rs. 235 billion which were Rs. 69 billion in FY 2018-19 showing an increase of 340 percent.
The decrease in Customs Duty was due to deliberate reduction of imports to overcome Current Account Deficit. Due to reduction in imports, an impact of Rs. 700 billion shortages in revenue collection occurred, which resulted in setting a new revised target of Rs. 4803 billion from Rs. 5505 billion in December, 2019. There was a robust growth of 27 percent in domestic taxes till February, 2020 and it was highly expected that revised revenue target of Rs. 4803 would be achieved. However, due to continuous lockdown in the wake of Corona Virus outbreak, the revenue target was further revised to Rs. 3907 billion which was achieved after persistent and dedicated efforts of FBR officers and staff despite danger to their lives due to Corona Virus.
FBR has further clarified that the current revenue collection figures are provisional data as the revenue collection is expected to further increase after inclusion of collection from book adjustments, Form 32A, Federal Treasury Receipts and offline branches of National Banks.
It is pertinent to mention that more than 30 employees of FBR have died due to Corona Virus which also includes a grade-22 Customs officer Muhammad Zahid Khokhar. FBR employees have been performing their duties with great devotion and zeal particularly in such dangerous situation when their own lives were at stake due to Corona outbreak”.
Considering that, major refund backlog was prior to coming into the power of PTI, indeed, the exceeding the target was an achievement worth recognition on the part of FBR. According to data finalised by FBR till the time of writing this, it exceeded collection target of Rs. 3907 billion by collecting Rs. 4126 billion gross and Rs. 4000 billion net—first ever in its history—when businesses were closed, imports largely suspended and duties were slashed to ease out business houses. FBR paid Rs.135 billion refunds of sales tax, income tax, customs and federal excise against last year’s figure of Rs. 122 billion.
In FY 2019-20, FBR paid Rs. 95 billion sales tax refunds against Rs. 21 billion last year showing increase of Rs. 74 billion. This is paid from its own collection. Additionally, an amount of Rs. 70 billion paid in respect of long-outstanding refunds through technical supplementary grant (TSG) by the government. These refunds were blocked/consumed by the government of Pakistan Muslim League (Nawaz)—PMLN. Thus, it is unfair to say that FBR’s collection is overstated by paying through TSG. Factually, the blocking of refunds of Rs. 523 billion during its tenure from 2013-18 confirm inflated figures by PMLN and must be related to each year the amount due but not paid!
With industry at a halt, payment to business community from TSG was for primarily for payment to avoid lay-offs. The most admirable step was strictly adhering to collection of due tax only and taking no advances as reported in FBR missed original collection target by record Rs. 1.58 billion[The Express Tribune, July 1, 2020]: “The new Member Operations FBR, Mohammad Ashfaq, had also given instructions to his team not to force the taxpayers to pay taxes in advance. While breaking from the past practice, the FBR also paid tax refunds even on the last day of the fiscal year”.
The collection figures (see Table) reflect net tax collection of Rs. 3990.760 billion registering a growth of 3.7% over last year when growth was –(0.4%). According to FBR, “It is extraordinary feat when the country remained under strict lockdown for over a month during April/May 2020”. However, the refunds paid under income tax were only Rs. 27.6 billion against last year of Rs. 83.8 billion.
It is true that the coalition Government of PTI failed to give tax relief to the salaried class, especially with no raise in the pay and pension of government employees, substantial reduction in income tax and sales tax rates for businesses, removing and/or deferment of withholding and advance taxes so that they can survive and revive in difficult times. In fact, FBR on its part tried to create fiscal space for providing incentives to persons with fixed-income by proposing luxury tax on the rich owners of farmhouses and palatial bungalows in Islamabad Capital Territory (ICT) but it was, unfortunately and lamentably, withdrawn by the political master after the rich legislators and the influential, rich and mighty class opposed it. FBR authorities deserve appreciation for proposing a progressive tax, but powerful vested interest both in the Senate and National Assembly and lobbies financing them or those who matter in the land due to their money power or position in the State have proved that they would not allow taxing the rich for the benefit of the poor! It exposes the tall claims of PTI that it came to power to ensure socio-economic justice, uplifting the weaker segments, and establishment of an egalitarian society!
Unfortunately, the cost of compliance cost has also been increased in Finance Act 2020 by reverting to quarterly statements instead of half-yearly. Shockingly, the power of real-time data access or otherwise is given to FBR under Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005 in the absence of Personal Data Protection Law in the country and no safeguards against hacking and leakages as well as abuse for self-aggrandizement, despite the fact these issues was raised in an article, Finance Bill and data privacy [The News, June 21, 2020] before the passage of Finance Act, 2020.
Table: FBR collection for fiscal year 2019-20 & 2018-19
[Source: FBR Year Book and PRAL]
[figures in million]
|Tax Head||FY 2019-20||FY 2018-19 (FBR year book)||Growth|
The PTI Government could have taken a number of initiatives and resort to innovations for resource mobilisation—tax and non-tax—as well as for reducing cost of doing business. On the contrary, before the adoption of Finance Act 2020, it substantially increased prices of petroleum products on June 26, 2020 with disastrous consequences (Unconstitutional levy [The News, June 30, 2020] and The POL bomb [Business Recorder, April 5, 2019].
The PTI Government showed no inclination to reduce exemptions, concessions, waivers and immunities causing tax expenditure of Rs. 1.5 trillion in the fiscal year 2019-2020 as per own admission in Annex-II appended to Economic Survey 2019-20 [detail discussion is available in Analysing ‘tax expenditure’ [Business Recorder, June 26, 2020]. In fact, more exemptions and benefits have been given to the rich and influential, whereas proudly claiming, “no new tax” levied. The PTI Government showed total apathy towards the weaker sections of society and small and medium enterprises (SMEs) facing the unsustainable economic toll of Covid-19 outbreak/lockdown. It could have reduced the incidence of exorbitant sales tax, withholding taxes and high cost of utilities and other oppressive levies like 12.5% advance income tax from all mobile subscribers [166 million as on May 31, 2020 as per Pakistan Telecommunication Authority] and broadband users (82 million).
We have a complex tax system of over 70 unique taxes and at least 37 government agencies administering these taxes, yet not collecting enough and pushing the country into deeper debt trap. The figure reached Rs. 34.5 trillion by the end of May 2020 on an annualised basis, with an average of Rs.14.2 billion per day as per State Bank of Pakistan (SBP).
The PTI Government has made no effort to reform the fragmented and highly complex tax system, remove policy distortions and reduce fiscal deficit by various measures as suggested in various articles such as: Essential reforms, Business Recorder, March 29, 2019, Challenges for budget-makers, Business Recorder, March 22, 2019, Optimising tax collection, Business Recorder, March 15, 2019, Fixing the ailing tax system, Business Recorder, March 1, 2019, Country needs massive reforms, Business Recorder, January 25, 2019, Time up for fiscal integration, Business Recorder, December 21 & 23, 2018, Tax policy for investment, Business Recorder, December 14, 2018, Productive tax reforms, Business Recorder, October 27, 2018, Overcoming fragmented tax system, Business Recorder, October 19, 2018, PTI & revival of economy, Business Recorder, October 12, 2018, Bridging the tax gap, Business Recorder, October 5 & 7, 2018, Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018, Overcoming debt burden, Business Recorder, August 27, 2018, PTI and tax reforms, Business Recorder, August 17, 2018 and Wither tax reforms, Business Recorder, August 2, 2019.
In its two years in power, the PTI Government incurred ‘tax expenditure’ (forgoing of revenues) of Rs. 1149.95 billion in FY 2019-20 and Rs. 972.4 billion in FY 208-19 (total of Rs. 2122.35 billion (shown in Annex II of relevant Economic Surveys), but ignoring impact of asset-whitening schemes of 2018 and 2019 and many other items which FBR in ‘Statement of Estimated Tax Expenditure of Federal Government’ says could not be quantified for lack of data! The total tax expenditure, according to independent estimates, was not less than Rs. 3 trillion. Even if half of the concessions were withdrawn through Finance Act 2020, fiscal space of about Rs. 600 billion could have been created for meaningful tax reductions for revival of economy and helping out the SMEs to survive and helping the needy without job.
In a report [Finance Bill 2020: NA approves major tax relief], the following points have been raised showing benefits allegedly extended to particular vested interests:
- Tax concessions extended for certain individuals and influential groups of society, weakening the tax base broadening drive and creating more distortions in the tax system.
- New tax concessions that were not part of the Finance Bill 2020 but later included to reduce income tax rates for engineering services, shipping business, exempting from tax the income of real estate investment trusts, few educational institutions, lowering tax rates for electric vehicles and Hajj operators.
- Amendment to section 73 of the Sales Tax Act, 1990 was dropped placing a bar on persons from selling goods to unregistered people above the value of Rs100 million in a year. Currently, this applies to the manufacturers/producers—“this would weaken the drive to document the informal economy”.
- Capital gains tax rates have been lowered for companies not listed on the stock exchange through a provision inserted into section 37A of the Income Tax Ordinance, 2001 that deals with tax rates for securities traded at the stock market.
- Proposal to impose 25% regulatory duty on energy drinks has been withdrawn. The duties on imported cigarettes of tobacco, cigars, cheroots and cigarillos of tobacco have been imposed at a rate of 65% as against the budget proposal of 100%.
It may be noted that the passage of amendments in Petroleum Products Petroleum Levy Ordinance, 1961 and Public Finance Management Act, 2019 was in gross violation of the Constitution of the Constitution as held by the Supreme Court in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)], Mir Muhammad Idris v FOP PLD 2011 SC 213 and Sindh High Court Bar v FOP PLD 2009 SC 789. These should have gone to both the Houses [Senate and National Assembly].
The existing system imposes high taxes but yields low revenues. Only 2000 companies pay 75% of total taxes. The standard sales tax rate is 17% but effective rate, according to 2016 report of Tax Reforms Commission, was not more than three to four percent. The situation in 2020 may have improved, but it is still not more than eight percent. Refunds of billions of rupees of sales tax and income tax were unlawfully withheld to show higher figures in the past—Of unpaid refunds and figure fudging, Business Recorder, November 9 & 14, 2018. FBR never reveals the actual amount of refunds due—just shows the figure of refunds actually paid. FBR has yet not posted on its website the total quantum of refunds payable as on June 30, 2020 after claim of exceeding the target. It should do so without any further delay and must pay all the pending refunds as soon as possible.
Unfair taxation is the root cause of our multiple socio-economic ills, resulting into inequitable distribution of resources. FBR as it exists today is incapable of tapping real tax potential, as in addition to capacity issues, those in power and other vested interests do not allow it to work freely. We need a National Tax Agency (NTA)—FBR high-ups prefer the name, ‘Pakistan Revenue Board’ (PRB). This body, whatever name may be given, shall not only be responsible for collection of taxes for federal, provincial and local governments but also to administer various social and economic benefits and incentive programmes, otherwise tax compliance will remain a distant dream. People must get free education, quality healthcare, decent housing/transport plus social security schemes, such as, disability allowance, old age benefits, income support, child support, pension, just to mention a few, in lieu of paying fair taxes.
One of the salient features of NTA would be its innovative structure, run by an independent Board, accountable to Parliament through the Minister of Revenue. The minister would have the authority to ensure that the NTA operates within the overall government framework and treats its clients with fairness, integrity, and consistency. Further details of its structure and duties are discussed in Case for “NTA”, Business Recorder, November 27, 2015.
Out of about 2.5 million income tax returns filed for tax year 2019 until May 31, 2020, one million showed nil income or income below taxable limit. A country with a population of 220 million, at least 96 million unique mobile users [total subscribers are 166 million, but many will have multiple SIMs or dormant accounts] and 82 million internet users are paying advance, adjustable income tax of 12.5%. How many of these have taxable income? No data is available with FBR. According to data of 2018 compiled by Pakistan Electric Power Company (PEPCO) as on June 30, 2018, there were 3,028,054 commercial and 339,853 industrial electricity users paying advance income tax under section 235 of the Income Tax Ordinance, 2001. K-Electric had 463,670 commercial and 20,647 industrial users on June 30, 2018. According to FBR Year Book 2018-19, total income tax returns received for tax year 2018 were 2,666,256. Out of total sales tax registered persons of 220,242, only 141,106 filed statements in fiscal year 2017-18.
FBR has recently closed audit of 310,000 cases, selected merely because of late filing of returns. The reason for closure, assigned by FBR, is “lack of capacity” [FBR: audit closure, capacity & legality, Business Recorder, May 8, 2020]. Either this lack of capacity is due to shortage of officers or absence of proper training/skills or pressure from political masters is again not disclosed by FBR or the coalition Government of Pakistan Tehreek-i-Insaf (PTI).
The field officers complain about shortage of work force and necessary facilities. They further complain that approval of head of FBR is required even for a visit/raid to any business premises or to seek details of a bank account. In other words, they allege that purposefully on the pressure of business community, the PTI Government, like its predecessors, has rendered the FBR toothless as they can neither impound record, nor get third party information. Their claim needs to be confirmed or refuted by the Government. On the other hand, businessmen accuse tax authorities of abuse of powers, highhandedness and harassment for self-aggrandisement. In this agonizing scenario, can the PTI Government collect taxes fairly and fearlessly when the system is so complex and needs simplification? The PTI Government must give due weightage to recent studies of Pakistan Institute of Development Economics (PIDE), Doing Taxes Better: Simplify, Open & Grow Economyand Growth inclusive tax policy: A reform proposal, quoting Towards Flat, Low-rate, Broad and Predictable Taxes (PRIME Institute, Islamabad, 2016).
The following proposals were sent to the Ministry of Finance and FBR as a result of consultation on May 18, 2020 with Adviser to the Prime Minister on Finance and Revenue, aimed at providing ease of doing business, reduce business cost and helping revival of badly-hit economy as well as revenue generation of Rs. 5 trillion in fiscal year 2020-21. Since most of these suggestions and recommendations have not been implemented, the same may be introduced through Finance Supplementary (Amendment) Bill as was done twice in 2018 after assuming power by the PTI Government:
- “Presently, barring a few, income tax is levied on net income with minimum tax to the extent of amounts collected through over 60 withholding provisions. It is patently unconstitutional as held by Supreme Court in Elahi Cotton Mills & others v Federation of Pakistan & others [PLD 1997 Supreme Court 582]. The apex court held that the National Assembly through Money Bill can impose taxes on income under Entry 47, Part I, Fourth Schedule to the Constitution or impose the same under Entry 52 on the basis of capacity to earn, but “it cannot adopt both the methods in respect of one particular tax”. The Finance Act 2019 blatantly violated this constitutional command. This may be corrected by opting either to net income taxation or presumptive but not both as suggested.
- For the next two-three years due to recovery phase of businesses hit by Covid-19 endemic, the actual quantification of income of non-corporate businesses and professions should be given up and taxation may be moved to gross basis at fixed rate. The taxpayers in their books should be allowed to take credit of imputable income.
- For ease of doing business and waiving off lengthy disclosures in exceptional circumstances, if presumptive tax is imposed on turnover/receipts under Entry 52 as was done in 1991-92, the collection will be around Rs. 800 billion from all businesses and professions other than companies and employees that will keep on paying taxes under the existing tax rates and system [working and enforcement steps are attached].
- The total collection, if we add corporate sector’s contribution after levying excess profit tax to counter monopolies and cartels, under the head income tax for fiscal year 2020-21 alone can be Rs. 2000 billion against the net collection of Rs. 1445 billion in 2018-19 [we are not taking 2019-20 collection into account due to massive shortfall in the wake of Covid-19 outbreak and lockdown]. The additional revenue of around Rs. 555 billion under one head alone will be a great achievement without hampering economic revival and, in fact, giving businesses and professions a stimulant to grow in the next three years. FBR will get much more tax than what it is presently collecting after giving share of 57.5% to provinces under the National Finance Commission (NFC) Award.
- The federal government should amend the definition of “agricultural income” to bring into its ambit receipts from sale of orchards, lease of lands, nurseries and in this way, the rich absentee landowners and those engaged in businesses of nurseries will come under the Income Tax Ordinance, 2001. Additional revenue of Rs. 200 billion can be obtained from this source, if taxation is based under Entry 52 as discussed above.
- Multi-national Companies (MNCs) through abusive transfer pricing mechanism deprive Pakistan of taxes of over Rs. 200 billion every year and this can easily be recouped with advance transfer pricing agreements, presently no provision exists to this effect.
- The total collection by imposing unified sales tax on goods and services (as done by India in 2017) can reach Rs. 3500 billion as against collection of around Rs. 1659 by the Federal Government through sales tax on goods [Rs. 1459 billion in 2018-19] and provinces by sales tax on services [cumulatively Rs. 190 billion]. The additional revenue collection of Rs. 1400 billion will not only give fiscal space to the federal government to narrow down fiscal deficit but will also enhance distribution amount to the provinces. Distribution will be strictly as per Constitution. The collection under new law will be by FBR as provincial assemblies need to pass only resolutions under Article 144 of the Constitution empowering the National Assembly to enact integrated sales tax on goods and services. There is no need to enter into controversial amendment in the Constitution disturbing 18th Amendment. The slogan of ‘One nation, One Tax’, adopted by India in 2017, and Harmonised Sales Tax (HST) by Canadian federal and provincial governments is the way forward as taxpayers operating on trans-provincial level are facing many difficulties.
- In case the provinces do not agree for above, then for trans-provincial entities, FBR can include in Finance Bill 2020, sales tax on services, following the command of Supreme Court in the case of Messers Sui Southern Gas Ltd & Others v Federation of Pakistan & Other 2018 SCMR 802. It extensively elucidates that the post-Eighteenth Amendment position vis-à-vis legislative competence of federation and federating units as under:
“We are in agreement with the observation made by the learned High Court that though in a Federal system, provincial autonomy means capacity of a province to govern itself without interference from the Federal Government or the Federal legislature, but as the Provincial legislature does not possess extra-territorial legislative authority i.e. it cannot legislate regarding the establishments operating beyond the territorial boundaries of that province”.
The above pronouncement of the Supreme Court is not restricted to any particular law and cover tax laws as well. It is binding under Article 189 of the Constitution and provinces if do not agree for integrated sales tax of goods and service will suffer.
- In Customs, massive evasion takes place due to under-invoicing, misclassification and mis-declarations. The collection in 2018-19 by FBR was 686 billion. If revenue leakages are plugged as suggested in Dismantle containers’ mafia, Business Recorder, September 14, 2018, it can be Rs. 1200 billion. An extra generation of Rs. 500 billion under this head alone is possible.
- The loss in FED due to illicit local manufacturing and smuggled cigarette sector alone is Rs. 60-80 billion a year. It can be recouped by trace and track (T&T) system that should also be extended to all industries across the board, e.g. textile, sugar, cement, beverages etc.
- In order to tap the real tax potential of retail sector and to bring informal economy into tax net, a simple and fair tax system is proposed. If we take even negative effect of Covid-19 pandemic, the retail sales in fiscal year 2020-21 will not be less than $105 billion, otherwise would have cross $ 140 as per study of Punjab Board of Investment and Trade. By applying sales tax of 4% and income tax of 2% on gross turnover, the total collection will be around Rs. 1.2 trillion from this sector alone for which the following amendments are proposed:
Section 3(9) & (9A) of the Sales Tax Act, 1990 should be omitted and following new subsection (9) should be inserted:
“(9) Notwithstanding anything contrary contained in the provisions of this Act, tax on retailers be charged, levied, collected and paid as provided under rules issued under section 99B of the Income Tax Ordinance, 2001 at the rate of 4% of the gross turnover or at such a lower or higher rate as the Federal Government may specify by notification in official gazette.
Provided that provisions of subsection (7) of section 3 shall not be applicable in case of retailers covered under this sub-section”.
In the Income Tax Ordinance, 2001, section 99B should be substituted as under:
“Notwithstanding anything contained in any other law for the time being in force a tax shall be charged, levied, collected and paid at the rate of 2% of the gross turnover inclusive of Sales Tax as provided under subsection (9) of section 3 of the Sales Tax Act, 1990 on 15th of every month next following the month to which such turnover relates. The Federal Government may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, filing of return and assessment in respect of such retailers, as may be specified therein:
Provided that the provisions of section 147, withholding of tax under Part “V” of Chapter X (except tax on salaries under section 149) and Chapter XII and provisions of Schedule 10 shall not be applicable to retailers covered under this section”.
“In exercise of powers under subsection (9) of section 3 of the Sales Tax Act, 1990 and section 99B of the Income Tax Ordinance, 2001, the Federal Government has prescribe the following procedure for qualifying retailers thereunder:
- The retailers shall receive/file monthly return and make payment on monthly basis along with return calculated as per formula provided below on 15th of every month next following the end of month to which such turnover relates.
Turnover PKR 10,000,000
Sales Tax on above @ 4% (A) PKR 400,000
Total amount subject to income tax PKR 10,400,000
Income tax @ 2% on above (B) PKR 208,000
Total tax liability to be paid with return (A+B) PKR 608,000
- All retailers must get themselves connected with FBR through Point of Sale (POS) irrespective of their turnover. No audit shall be conducted for retailers who opt for POS.
- Retailers shall be allowed to incorporate profit in their books working back the income tax paid applicable to total income (imputable income).
- 1% cash back/rebate on yearly basis will be allowed to such retailers who have adhered to all the provisions prescribed. However, if it is proved on the basis of information that cash back/rebate was claimed on erroneous basis then notwithstanding anything contained in any law for the time being in force, such retailer shall be charged with a penalty of 5% of annual turnover and imprisonment that may be up to 5 years”.
As evident from above, effective income tax rate will be 1% of turnover for those retailers who opt and comply with the proposed law/procedure. Those who do not opt will become uncompetitive, as they will remain subjected to withholding taxes, 17% sales tax, advance tax, if applicable, audit and higher rate of income tax. The details of their assets, incomes etc will be in possession of FBR after having real time data access and obtaining reports from private licensed credit information bureaus, established under Bureau Act, 2015, working under the regulatory control of State Bank of Pakistan.
It was suggested that the FBR should become member of private licensed credit information bureaus [“the bureaus”] who have already collated and stored data from NADRA, Excise, Land, Banking, FIA (travel), schools, insurance companies, utilities’ providers and telecommunication operators (telcos). But, the FBR wants to reinvent the wheel. It has secured power to real-time data access in Finance Act 2020 without having capacity to analyse database that only a smart data scientist can do. The FBR has poor record of data protection, as there have been frequent leakages and abuses. It will create further harassing of the citizens and existing taxpayers. One wonders, what was the need to obtain this power when work has already been done by bureaus enjoying legal mandate to collect data from those sources that FBR wants to tap in the absence of infrastructure and human capabilities? There is, in fact, a need to have a Centralized Depository wherein data from all sources can be utilised by various agencies including FBR after passing Personal Data Protection Law, still at draft stage with the Ministry of Information Technology and Telecommunication.
The pathetic situation of FBR can be gauged from the fact that it has about 240,000 registered persons under Sales Tax Act, 1990 but tax comes from about 44,000. Shockingly, out of 360,500 industrial connections as on June 30, 2018, only 18,000 were registered under sales tax regime. Out of 3,491,724 commercial electricity users as on June 30, 2018, less than 350,000 filed income tax returns though tax of Rs. 33.832 billion was paid with bills as per FBR Year Book 2017-18 and figure for fiscal year 2018-19 was Rs. 35.5 billion as per FBR Year Book 2018-19.
As suggested above, by adopting rational measures, the federal and provincial governments could have substantial funds to counter the economic toll of the Covid-19 outbreak, as they must spend more money for infrastructure improvement to create more employment and ensure higher growth, engaging the private sector to take part in public projects. This alone can kick-start the economy. Simultaneously, the governments need to reduce wasteful expenditure, right-size the monstrous size of their inefficient machinery and make loss-bearing public sector enterprise (PSEs) profitable through public-private partnership or get rid of them, monetize all the perquisites of bureaucracy and make taxes simple and low-rate. State lands, lying unproductive in the heart of cities, owned by the federation and provinces, should be leased out for industrial, business and commercial ventures. This will generate substantial funds, revenue and facilitate rapid economic growth and substantial employment opportunities.
As expected, the PTI Government like its predecessors opted for routine measures and ignored all suggestions/recommendations for improving compliance, creating ease of doing business that has assumed renewed importance in the wake of Covid-19 endemic. This has been happening since 2008 under every government that the elected representatives (sic) show apathy towards important constitutional obligations under Article 73 and 82 of the Constitution of the Islamic Republic of Pakistan. Every year, their attitude confirms that they are only interested in safeguarding their privileges, untaxed/undeclared assets, besides obtaining more and more perquisites and benefits.
The privileged classes—militro-judicial-civil complex and those in power—get what they want—tax benefit on perks and benefits of Rs. 30 billion in tax year 2019 alone! The level of shallow debate, hurling of accusations as well as mudslinging shown by the Treasury and Opposition benches during budget session amounted to open defiance of the mandate of the masses of this country, that voted them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services—education, health, housing, transport, cleaning drinking water, social protection and civic amenities.
As was in the past, worthy members of the National Assembly (MNAs) did not assess nor even bothered to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor—out of total revenue 78% comes from indirect taxes that is highest in the world.
Prior to 2008, the standard excuse was that “we are not allowed to perform our constitutional duties under the umbrella of a military dictator”. Now, in the absence of this pretext, it is obvious that fault lies somewhere else. Time and again, it has been emphasised that democracy is not electioneering per se. Establishment of a responsible government caring for the needs of its people is a prerequisite for true democratic dispensation. This is only possible if the Parliament performs its constitutional role, implements flawless process of accountability and ensures good governance. Constitutionally speaking, the Cabinet is answerable to the Parliament, but the truth is that MNAs run after ministers for personal favours and gains.
Due to non-participation of public representatives in budget-making, financial managers and tax collectors have persistently failed to overcome fiscal deficit and remove fiscal imbalances as their tax policies are based narrowly on collecting taxes at source, without bringing the mighty sections of society within the tax net or collecting what is actually due from them.
The common citizen is subjected to exorbitant sales tax and federal excise duty [FED] plus advance income tax. They say Pakistanis do not pay taxes while 166 million mobile subscribers as on May 31, 2020 according to data available on website of Pakistan Telecommunication Authority and broadband users (82 million) are paying 12.5% advance income tax in addition to 19.5% sales tax on services to provinces and 16% FED if living in Islamabad Capital Territory, irrespective of their level of income. The tax incidence is over 35% to 55% on many imported goods after applicable customs duty, sales tax, FED, mandatory value addition and income tax. Even salt sold under brand names is subjected to sales tax but the mighty sections of society such as big industrialists, landed classes, generals and bureaucrats are amassing more and more wealth without enjoying exemptions and/or amnesties.
We can generate enough money for meeting all our current expenses, development needs and public welfare and the federal/provincial governments can retire debts in a few years’ if exemptions and waivers are withdrawn and fair taxes are collected firmly through an agency insulated from all kinds of influences and run by competent and professional staff. It is possible to become a self-reliant nation. However, this dream for Pakistan can never be realized unless all the elitist structures are dismantled and people are empowered to run their financial and administrative matters through efficient and elected bodies as envisaged in Article 140A of the Constitution with fiscal power to have own funds and allocation from shares received by provinces from NFC Award to provide the facilities of health, education and all civic amenities to the local residents at grass root level.
The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).