Dr. Ikramul Haq[*]
There has been much talk of reducing or even eliminating the contact between the tax payers and the tax collectors to overcome the deep-rooted corruption rampant in the tax machinery. The worthy Finance Minister, on more than one occasions, promised to carry out necessary reforms/changes to ensure that the tax payers are relieved from physical contacts with the tax collectors but his budget speech on 18th June even failed to mention any step in this direction.
Mr. Shaukat Aziz though mentioned that the Self Assessment Scheme would be a primary mode of assessment, has not elaborated how this mode of assessment alone can reduce (not to talk of eliminate) the contact between the subjects and the tax masters. The Self Assessment Scheme is not a new thing in the Income Tax Ordinance, 1979. It was even available under the repealed Act of 1922 since early 1970s.
He deferred all the tax reform measures suggested by the Task Force headed by Mr. Shahid Hussain, wherein some specific and concrete steps to reduce assessee-collector contact were recommended. On the contrary he relied on the tax bureaucrats (sic) sitting in the CBR for a patchwork of figures and numbers here and there. It is unfortunate that the Budget 2001-2002 has proved to be yet another “Babu Budget” showing a typical clerical mentality of changing rates of duties and taxes alone. The Finance Ordinance, 2001 does not contain any measure or step for basic structural changes in the tax system. The deferment of tax reforms in tax administration and policy is indicative of the fact that yet another “brilliant” finance minister has been over empowered by the CBR’s Babus. They managed to convince our polite and humble finance minister to restrict his tax agenda to a few cosmetic changes making the budget glittering from outside but no attempt to make any meaningful changes to weaken their control over the subjects (poor tax payers having no rights but only obligations, that too without any quid pro quo).
The much eulogized Self Assessment Scheme has the following inherent control mechanisms to ensure the leverage available to the tax collectors to harass and intimidate the helpless lot (those who have neither capacity nor resources to go for muk muka):
- Excessive documentation with the return giving innumerable opportunities to the assessing officers to fish around and catch from whichever angle they want the ignorant tax payers who are always at the mercy of ruthless practitioners (sic) who deliberately leave lacunae here and there to later on join hands with the collectors for blackmailing their own clients.
- Unqualified and undefined powers to select whatever returns the tax collectors want for total audit (which is not audit but a tool to tell the subject that he should behave and never ever imagine that he has any right for self clearance).
- Self-assumed interpretation of the term “concealment” that can be used against any tax payer to take him out of the Self Assessment Scheme and force him to make “contact” with the high and mighty and never think of keeping his distance as promised by the finance minister and chairman of the tax reform committee.
The tax bureaucrats have once again proved their supremacy by hoodwinking the “alien” finance minister that they are proposing something for the benefit of the tax payers, whereas the reality is just the opposite. The Self Assessment Scheme is once again luring the people to file false declarations to avail its benefit. By doing so the tax payers will leave many traces behind of their under-assessed incomes and for years to come they are to be blackmailed perpetually by the tax collectors to strike deals with them.
The conditions to avail the scheme have been made lucrative: Public companies have to just pay the same tax as was assessed last year and others to show only 20% increase in, no matter whether one has loss or higher incomes. This is a blatantly wrong policy decision. Time and again it has been stressed that without such pre-conditions, the assessees should be encouraged to file their true declarations and the tax collectors should have a right to verify the same independently.
It is an established fact that policy of appeasement towards mighty and greedy traders giving them facility to avail Self Assessment Schemes by showing some prefixed level of incomes has distorted and destroyed the entire tax system. It has promoted a close cooperation between the corrupt tax collectors and tax evaders. They have been depriving the State with tax worth billions of rupees. Once again under the mighty military rule such a policy of falsehood has been announced with pride and as a self-acclaimed righteous step. The State is caught in a dilemma; on the one hand it wants to ensure more tax than the last year and on the other it claims that people are free to file correct declarations of their incomes. How one can keep on declaring 20% more tax when the economy is in recession. He has been left with no choice but to part of falsehood. If he fails to file return under self Assessment Scheme, then the entire tax machinery is there to teach him a lesson of his lifetime.
The contacts between the honest tax payers and the tax collectors cannot be eliminated unless healthy tax culture is promoted where true declarations are respected and accepted. The ground realities are that those who pay their taxes honestly are always penalized. No matter how strong and reliable evidence they produce, their version is disbelieved and discarded. On the other hand, those who do not file any tax declaration, understate their colossal income or merely fulfil the pre-determined threshold of the Self Assessment Schemes fixed by their friends in the CBR are considered as “honest tax payers” and they have no complaints regarding “contacts” or excessive powers enjoyed by the tax collectors. Their cases are seldom selected for total audit, and even if these are selected (for eyewash), their declared versions are accepted after nominal additions.
The Self Assessment Scheme is a double-edged sword in the hands of tax Babus, who know how to use it against the foes and for the benefit of the “friends”. Our polite but ignorant finance minister does not have the ability to comprehend this modus operandi of CBR stalwarts.
Last year, these stalwarts convinced the finance minister that the target of Rs.436 billion is quite achievable. As the financial year progressed, they started inventing excuses for downward revisions of this target putting pressure on the finance minister, thus making him look like a fool. Now he is harping on the tune that even the collection of Rs.400 billion is an extraordinary feat, not realizing that even to show this mark genuine refunds of 20 to 30 billion rupees have been criminally withheld crippling the exporters and financial institutions.
The ignorance of our finance minister was further exposed when he fixed the next year’s target at Rs.457 billion at the time when there is complete stagnation in the economic activity and serious deterioration in industrial investment. In his ‘Babu budget’, there was no mention of what steps have been contemplated to achieve this rather ambitious target. He did not announce a single measure to promote tax culture or to reduce/eliminate excessive powers (both discretionary and confiscatory) enjoyed by the tax collectors.
The colonial-styled tax machinery has numerous and ruthless assessment and recovery powers that are still available under the Income Tax Ordinance, 1979, Sales Tax Act, 1991, The Excise Tax Act of 1944 and the Customs Act of 1969. A number of mindless amendments have been made in these enactments (many of them effective from 2002 but portrayed as if immediate relief has been given), but not a single amendment has been made to remove vast discretionary and confiscatory powers such as the following draconian provisions:
- Section 13, 65, 52 (just to name a few) of the Income Tax Ordinance 1979.
- All the presumptive taxes are there at full force taxing the poor heavily and benefiting the rich enabling them to pass their personal tax burden to others.
- Facilitating the greedy importers and corrupt contractors to enjoy tax holiday by charging the taxes paid by them as part of their price or contract, courtesy section 80C of the Income Tax Ordinance 1979.
- All the draconian recovery provisions of Sales Tax Act 1990 denying genuine benefit of input and forcing the small industry to give way to giant multi-nationals.
- Keeping all the sections of Sales Tax Act intact which are capable of destroying our indigenous industrial/trading houses and paving the way for transnational companies’ control over our markets.
- Overtaxing the local products and raw materials used by industrial houses, and by lowering the duties on the finished goods of the highly industrialized countries.
The CBR is the main tool for the foreign donors for achieving the goal of economic subjugation and the direction of the tax policies is quite clear to make this organization an oppressive apparatus and not a people friendly institution helping the nation towards self-reliance.
It is now more than clear from this budget that the State is not serious at all to make any meaningful and productive changes in tax policy, administration and laws. It has no intention to reduce the contact(s) between the tax payers and the tax collectors. In fact the entire stress is on ensuring that people of Pakistan remain subservient to foreign masters and at the mercy of the corrupt, inefficient and oppressive CBR’s officials.
[*] Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 7226953, e-mail: email@example.com; website: http://www.paktax.com.pk). He is a member of the visiting faculty of the Institute of Direct Taxes in Lahore. He served for 12 years as Deputy Commissioner of Income Tax. He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law and global narcotics trade, some of which are co-authored with his wife, Mrs. Huzaima Bukhari.