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Dr. Ikramul Haq
Total income tax returns filed till the many times extended date [December 17, 2018] for tax year 2018 were 1,483,020 as compared to 1,756,982 persons on Active Taxpayers’ List (ATL), as per website of Federal Board of Revenue (FBR), on the said date for tax year 2017. This shortfall of 273,962 returns was despite the fact that non-filers cannot buy either immovable property exceeding Rs. 5 million or any car and would not become part of ATL—they will continue to suffer higher rate of withholding taxes. The Minister of State for Revenue was jubilant that the number of income tax return filers had increased by 30% as last year only 1.1 million returns were received for the corresponding period. He claimed that this rise was “due to action against non-filers and facilities to the traders”—both measures were introduced by the last government!
Strangely, the Government of Pakistan Tahreek-i-Insaf (PTI) is satisfied with the figure of just 1.48 million and claiming it as a “big achievement”! The worthy State Minister for Revenue did not reveal how many filers are salaried persons? How many declared loss, zero or negligible income? There are 95 million unique mobile users and they paid 12% advance, adjustable income tax till June 30, 2018. Out of these 75 million many have incomes below taxable limits—they do not file returns knowing that even if they do so refunds due will not be issued, rather they will be harassed. Many of them cannot afford hiring tax advisers. The return form in English is so complicated that majority of Pakistanis cannot fill it on their own.
According to 2017 census, our population is 207.77 million [provisional]. The dependent population of children under the age of 15 years is 35.4% and 4.2% people are above 65 years. Out of total population, 40 million are below poverty line earning less than two dollars a day. Our labour force, among the tenth largest in the world, is around 70 million. Majority of rural labour force [42.3%] earns below taxable income or agricultural income falling outside the ambit of Income Tax Ordinance, 2001. Juxtaposing, all these figures, individuals liable to income tax cannot be more than 10 million. FBR collected 12% advance, adjustable income tax from 95 million mobile users alone (Of total subscribers of 151 million as on June 30, 2018 many had multiple SIMs). Out of these only 1,483,020 (1.56%) filed tax return for tax year 2018 but the worthy Minister is still patting the back of FBR and saying it was due to his efforts!! Even if two million more returns are filed in coming days, which is a very optimistic target, there will remain a huge gap of 8 million!!
In 2014, our imprudent policymakers introduced higher withholding tax rates for ‘non-filers’ hoping that it would force them to file returns or identification will be made to issue them notices. In 2018 budget, they were barred from buy property and vehicles. After four years, the number of filers has decreased. But, the burden of the withholding agents has increased manifold as they have to verify whether a person whose advance tax is to be deducted/collected is in ATL or not. It is well-established by now that the illogical, rather unconstitutional provisions, have not improved compliance—though FBR is reaping the fruits as growth in income tax is largely due to increase in the number of withholding provisions and enhancement in their rates.
Mr. Asad Umar and Hammad Azhar must realise that these measures are actually back-lashing. The number of income tax return filers is declining. It is pertinent to mention that Jorge Martinez-Vazquez and Musharraf Rasool Cyan in their book, ‘The Role of Taxation in Pakistan’s Revival’, mentioned at page 676 [Figure 36] that 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07. This shows that FBR has lost substantial number of return-filers during the last 11 years despite prescribing higher withholding tax rates for them and prohibiting them from buying property/vehicles. We need to conduct an independent study to find out what has gone wrong? Why non-filers, even after being penalised, are opting to remain out of the net and are paying more by way of advance tax instead of filing returns?
People have become so indifferent that they are intentionally avoiding registering themselves with FBR knowing very well that once they do so, the officials will make their lives miserable through unlawful orders, illegal demands and inhuman attitude. They lack faith in the tax officials as well as the justice system. They are weary of long and expensive bouts of litigation that culminate into high costs and further misery for taxpayers as a result of high-handedness of revenue authorities as well as the appellate system.
FBR has been claiming success in broadening the tax base, but reality is that it has even failed to regain its lost return filers. FBR stalwarts need soul-searching to find out what has gone wrong and where these taxpayers have vanished. Wrong policies, especially excessive reliance on withholding taxes, are showing devastating effects. High indirect taxation and excessive burden of withholding taxes are proving detrimental for economic growth. Now there is defiance on mass scale as evident from decreasing number of filers and huge tax evasion in withholding tax regime causing illegal enrichment.
The real issue of taxation in Pakistan is appeasing the rich and mighty and lavish spending on comforts of elites which are the main cause of ever-expanding budgetary gap. Such wrong policies are responsible for continuous increase in the miseries of the people. Nearly 20% of Pakistan’s population now lives below $1.25 per day, which is categorised as extreme poverty.
It is a fact that FBR is not interested in nabbing big tax evaders. Tax Directories of Tax Year 2013 to 2016 shows that less than 50% registered corporate bodies file tax returns, yet FBR is not taking any action. The majority of parliamentarians, though enjoying luxurious living, just show remuneration from the State as their only source of income. FBR has evidence of their assets and huge expenses but never goes for audit of their tax affairs. The income and expenditure declarations of judges of higher judiciary and military-civil high-ups show extraordinary tax concessions and exemptions that are not available to ordinary mortals.
The FBR has miserably failed in increasing the number of tax filers, bridging the obnoxious tax gap, registering all business houses and properties, checking leakages and rampant corruption within their ranks. The PTI government, instead of taxing the rich, reducing wasteful expenditure, incentivizing economic growth, is conveniently picking on the poorest of the poor to please the IMF and even considering a new mini budget to levy more indirect taxes! Is this the model of ‘Riyasat-e- Madina’ [welfare state] that the Premier wants to establish?
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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS). Email:ikram@huzaimaikram.com; Twitter: @drikramulhaq.