Dr. Ikramul Haq
Why has the Federal Board of Revenue (FBR) after imposing more than 50 types of withholding taxes failed to enforce filing of returns by all those who have taxable income? FBR has even failed to get returns from all companies what to talk of millions of individuals and business houses that are openly defying tax laws by not filing returns and statements. The total number of companies registered with the Securities and Exchange Commission of Pakistan (SECP) increased to 92,109 by end of September 2018, but less than 30,000 filed returns, though under the Income Tax Ordinance, 2001 every company is required to file it. Nearly 92 million (total subscribers are now 146 million) unique mobile users paid 12% advance adjustable income tax but those files returns for Tax Year 2017 as per own admission of FBR are 1.26 million that is only 1.37% of total taxpayers.
The overwhelming majority in Pakistan, even after paying advance income tax, do not file returns either thinking it futile or due to fear of tax officials, who are considered the worst enemy of the filers and best friends of the non-filers! Pakistanis are among the leading philanthropists of the world, yet the millions live in abject poverty. People love to establish charities and operate them at their own but do not campaign for improvement in public health and education systems. The failure of State to spend taxes for public welfare, juxtaposed with apathy of the enlightened ones to opt for charity-model than for egalitarianism, is the real dilemma of Pakistan.
When anybody pleads for paying taxes diligently, the people ask: “do you know how rulers play havoc with the taxpayers’ money”? They ask for calculating cost to national exchequer in providing tax-free perks and perquisites to militro-judicial-civil-complex and public office holders in the form of palatial residences, army of servants, expensive cars, golf courses, rest houses, foreign tours, banquets, etc. They argue that the government should first stop this colossal wastage of funds and then debate the issue of improving tax-to-GDP ratio.
In 2014, our imprudent policymakers introduced higher withholding tax rates in the case of ‘non-filers’ hoping that it would force them to file returns. After three years, the number of filers has decreased and the burden on withholding tax agents has tremendously increased. The illogical provisions have not improved compliance but FBR is showing over 15% growth despite decrease in the number of return filers. This formula is simple: keep on increasing the number of withholding provisions and also enhance their rates. Our policymakers have failed to realise that these measures are actually back-lashing—the burden of taxes is shifting from the less-privilege rapidly with each passing year.
Ordinary people because of fear of harassment at the hands of tax machinery are intentionally avoiding to get registered 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 apparatus as well as the justice system. They are wary of long and expensive bouts of litigation that culminate as a result of high-handedness of revenue authorities as well as the appellate system.
Paying taxes loses it meanings in countries like ours where State becomes indifferent towards the needy and elites thrive on taxpayers’ money. Our rulers live lavishly while Pakistan ranks 147 out of 187 countries in Human Development Index (HDI). Not less than 25 million children out of school in Pakistan in violation of Article 25A of the Constitution—see detailed judgement of Supreme Court 2014 SCMR 396 re Petition regarding miserable conditions of schools. World Bank’s report, World Development Indicators (WDI) 2017, shows that 14% of Pakistan’s population lives below $1.25 per day, which is categorised as extreme poverty. Million are suffering from malnutrition, hunger and diseases, deprived of basic facilities of life. In the face of these grim realities, expenses of the Prime Minister Secretariat for 2015-16 were Rs. 882 million—in the immediately preceding year these were Rs. 779 million. The annual expenditures of the President House went up to Rs. 863 million in the 2016-17 against Rs. 801 million in 2015-16.
Rich and mighty, with the help of crafty tax advisers, avoid taxes. The exploit weak enforcement and lacunas in laws. Admittedly, non-reporting and under-reporting of incomes and evasion of sales tax/customs/federal excise duty is rampant in Pakistan, but it must be seen in the context of giving unprecedented tax concessions, immunities and amnesties by the successive governments, military and civilian alike. They never bothered to crack down on untaxed money. On the contrary, the ruling elites have been appeasing tax cheats by extending generous tax amnesties and whitening schemes like section 111(4) of the Income Tax Ordinance, 2001.
The politicians claim that main problem is how to deal with powerful bureaucrats who are inefficient and corrupt. While expressing helplessness before bureaucracy, they openly resort to tax evasion and seek protection behind amnesty schemes. There exists an unholy alliance between the politicians and bureaucrats. Bureaucrats please their political masters and in return get favours. If elected representatives are sincere, they should pass asset-seizure legislation and confiscate all the ill-gotten money and untaxed assets. This step will not only ensure accountability and transparency but solve the most pressing issue of burgeoning fiscal deficit and mammoth debt burden.
If elites start paying their due taxes, businessmen will be left with no excuse but to do the same. If the government brings 15 million rich into the net of filers, get income tax from all on their real income and impose 10% sales tax across the board, there will be no fiscal deficit. This goal can only be achieved if the government simultaneously brings much-needed reforms in civil services, tackles tax evasion through asset-seizure legislation and counters rampant corruption in the tax machinery by not throwing some officers out of job but making the system workable—the staff should be paid justly with strong accountability.
Pakistan is capable of substantially reducing or even eliminating its fiscal deficit and debt burden in a couple of years provided that a comprehensive and well designed work plan based on multi-dimensional strategy is prepared and implemented for resource mobilisation and debt retirement coupled with ending all tax-free perks and benefits to militro-judicial-civil complex by monetizing the same. The huge and expensive properties occupied by them should be converted into income-yielding assets or sold in market through public auction. They should get composite pay package, based on market wages, as is the case in private sector e.g. banks and arrange their own residences and conveyance. They must live among the masses and not in fortified areas called GORs. Their alienation from masses, which they are supposed to serve, and quest to preserve elitist structures are the root cause of dissatisfaction of citizens with the system.