Dr. Ikramul Haq
The prevailing myth that our tax base is narrow and only 1% of the population pays income tax is totally fallacious—this statement reiterated by the representative of Federal Board of Revenue (FBR) before Senate Standing Committee on January 30, 2019 should be lambasted. He and all members of the Committee conveniently ignored the distinction between ‘filers’ and ‘payers’. Millions of Pakistanis are subjected to over 65 withholding taxes—both adjustable and non-adjustable. Resultantly, millions having no taxable income are subjected to extortion and not taxation.
The fact is that income taxpayers are not less than 95 millions, but return filers are pathetically low—only 1,492,507 filed income returns for tax year 2018 whereas this number was 1,756,982 for tax year 2017. In 2006-07, FBR received 2.1 million returns [Figure, 36, Page 676, The Role of Taxation in Pakistan’s Revival, Martinez-Vazquez and Musharraf Rasool]. FBR needs soul-searching to find out what has gone wrong and where have these taxpayers vanished—certainly due to harassment and highhandedness. Obviously, this is the worst that can happen to any tax machinery, but FBR, as usual, is shifting blame on the citizens and hiding the truth.
The Prime Minister of Pakistan during a meeting on reforming the FBR (many think it is incorrigible) on January 30, 2019 aptly observed: A country where 30 percent of the country’s budget is being spent on payment of interest on loans, ignoring loopholes in the present tax system is a criminal negligence. In the past, due to harassment caused to public and business community, complicated system of tax recovery, corruption and spending of tax money on the lavish lifestyle of the rulers, the ordinary citizens had lost their trust in the system and FBR that we need to restore”.
According to 2017 official census, our population [provisionally] was 207.7 million (by January 31, 2019, it is estimated at 212.7 million). The dependent population of children under the age of 15 years as on June 30, 2018 was 35.4% and 4.2% people were above 65 years. Out of total population, 40 million were below poverty line earning less than two dollars a day. Our labour force was around 70 million—majority of it in rural area [42.3%] that earned below taxable income or agricultural income falling outside the ambit of Income Tax Ordinance, 2001. Analysing all these figures (juxtaposed), individuals liable to income tax could not be more than 5 million in tax year 2018. FBR collected 12.5% advance, adjustable income tax from 95 unique million mobile users alone (Out of total 151 million subscribers as on June 30, 2018, many had multiple SIMs) during the fiscal year 2017-18. Out of these only 1,492,507 (0.98%) filed tax returns for tax year 2018 till the last extended date (December 17, 2018) after availing many months of relaxation. The figure may go up to 1.6 million till December 31, 2019 but it will remain below the level of 1.7 million as on December 31, 2018.
Majority of the mobile users do not have taxable income, hence, are not legally required to file tax returns. If they do so only to claim the withheld tax, they fear becoming victims of the excesses of FBR officials and exploitation at the hands of unscrupulous tax advisers. In any case the cost to reclaim such amount would be much higher. It is an established fact that majority of the ultra-rich do not bother to file tax returns—they are happy with withholding tax provisions as these take only a fraction of their mammoth incomes. This confirms beyond any doubt the ineffectiveness and incompetence of FBR as rightly picked up by the Prime Minister and asked them to recover tax from the rich defaulters that include 99.9% parliamentarians who failed to pay Income Support Levy for tax year 2013. Will Prime Minister supervise progress of recovery from them?
Our real dilemma is that the rich and mighty are not paying taxes according to their ability. From tax year 2013 to 2017, less than 40,000 paid tax between Rs 1,000,000 and Rs. 10 million, and less than 5,000 declared tax over Rs 10 million. At present millions having below taxable incomes are paying income tax at source, yet FBR is engaged in a vicious propaganda that people of Pakistan are tax cheats! This is highly lamentable especially when small traders using commercial electricity connections are paying advance income tax under section 235 of the Income Tax Ordinance, 2001. It is an undeniable fact that FBR has miserably failed to get due tax from the rich—its main emphasis is on withholding taxes. As per FBR’s Year Book 2017-18 direct tax collection during 2017-18 was Rs. 1536.6 billion—(Withholding taxes: 68.5%), (advance tax: 21.9%), (paid with returns 2.7%) and (FBR’s own efforts through demand and collection (6.9%).
FBR has failed to tax those who have amassed mammoth wealth, some of them availed generous amnesties. Had they been taxed at normal tax rates, collection could have reached Rs. 8 trillion. This target is still achievable provided collection is fully automated, tax machinery is overhauled, leakages are plugged and all exemptions/concessions to the privileged classes are withdrawn. Banks, WAPDA, PTCL and mobile companies that collect advance taxes on behalf of FBR are fully computerised. By using their database, FBR can easily determine fair tax base. Provisional assessments can be made in respect of persons who are not filing tax returns and recoveries can be made. This will end the undesirable regime of non-filers.
Sparing the ultra-rich, who are deliberately avoiding 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 poor people hire a tax adviser to file return and pay money to get refund? The extreme injustice in tax system demands a widow and a senior citizen to pay 10% income tax on gross yield earned from Bahbood Certificate or Pension Account of National Saving Scheme. On the other hand, the rich and mighty landowner, absentee landlords are paying meagre or no tax.
It is the failure of FBR to enforce provisions relating to filing of returns by people having taxable income, for which it cannot blame the public at large. Are the people of Pakistan responsible for this pathetic performance? The responsible officials of FBR should be taken to task for this gloomy state of affairs. It is high time that FBR should put its own house in order and enforce tax laws across the board rather than blaming the already over-taxed people of Pakistan for its own managerial fiascoes and established record of protecting the rich and mighty. It must be remembered by all that non-collection of tax where due is as detestable as its collection, where it is not due.