Taxpayer Bill of Rights

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: irm@brain.net.pk; website: http://www.paktax.com.pk). He is also 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, some of which are co-authored with his wife, Mrs. Huzaima Bukhari, Additional Commissioner of Income Tax. He has been awarded Doctorate of Law for his research: Tax Reform in Quasi-Constitutional Perspective.

Collection of taxes has assumed enormous significance in Pakistan. There is a general consensus that our economic survival now lies with rapid and adequate increase in tax revenues. The general public always view the “zeal” and “enthusiasm” of the tax machinery in collecting taxes with suspicion and distrust. There are a number of reasons for this reaction. The highhanded and corrupt tax officials have created a general atmosphere of distrust between the taxpayers and the State. The successive governments have failed to utilise the taxpayers’ money in a transparent manner. The ruthless misutilisation of public money by the corrupt rulers has forced the people to openly defy the tax laws.

The present situation of antagonism between the State and taxpayers needs to be reconciled through a process of national consensus. A National Tax Commission, comprising judges, professionals, and representatives of the taxpayers and tax machinery, is the need of the hour. The task of tax reform cannot be achieved through handpicked experts (mostly coming from Washington) and some local teachers (who even do not know the ABC of taxation). The decision to reform tax system and laws through CBR’s backed tax reform committees, in which assignments have been given to ex-bureaucrats (who are in fact responsible for the present state of affairs), is an ugly joke with the nation. The tension prevailing between the government and taxpayers can only be eased through a national reconciliation process and not by issuing threatening statements by CBR stalwarts (sic). The proposed National Tax Commission as a truly representative and competent forum can provide a basis for an equitable tax system in Pakistan in a near future.

The process of national reconciliation on tax matters will certainly require some time. In the meantime, the Government in order to restore the confidence of the taxpayers should immediately promulgate Taxpayers’ Bill of Rights in the form of a Presidential Ordinance. The provisions of the Bill must:-

(a)       safeguard and strengthen the rights of taxpayers.

(b)       ensure equality of treatment.

(c)        guarantee  privacy and confidentiality of their declaration.

(d)       provide right to assistance by State in tax matters.

(e)       guarantee unfettered right of appeal through an independent tax appellate system.

(f)        provide facilities for independent review of disputes with tax authorities.

In recent years both the United States and the United Kingdom specifically enacted and implemented such laws to further strengthen their already highly developed tax cultures. The US Technical and Miscellaneous Revenue Act of 1998 contained a Taxpayer Bill of Rights. The UK Inland Revenue issued in 1996 a Taxpayer’s Charter informing taxpayers of their rights in audit and the tax collection processes.

In Pakistan, the State never bothered to educate the taxpayers about their obligations. They have been left at the mercy of the ruthless tax officials. The taxpayers have no specific Bill or Charter of Rights. Tax reform efforts will remain a cliché unless the State takes some fundamental steps to restore the confidence of the public in general and the taxpayers in particular and also convince them by concrete action that their taxes are spent for the progress and welfare of the society.

The taxpayers are the most humiliated beings in Pakistan, although it is a fact that a very few pay their taxes honestly, but even they have no protection of life and property. Others say that a government, which is incapable of protecting life and property of its citizens, has no right to impose or collect taxes. Those who are not paying or paying negligibly with the connivance of corrupt tax officials command respect, win elections and rule the country. After every other year, the rulers announce a tax amnesty scheme to prove that the honest taxpayers are just “idiots”. The forces of loot are hand in hand with the corrupt and both are flourishing in Pakistan. On the other hand, in the name of “documentation of economy” (sic), the life of the ordinary people is becoming difficult with each passing day. In the eye of rulers, the only purpose of National Survey for Documentation is to extort more taxes from the people. This tax is ultimately spent on giving unnecessary perquisites to the rulers of the day.

The existing tax system itself is a worst expression of colonial heritage. It is highly unjust. It protects establishment and exploitative elements that have monopoly over economic resources. There is no political will to tax the privileged classes. The common man is paying an exorbitant sales tax (15% to 16.5%) on commodities he uses as a consumer, but the mighty generals and bureaucrats are paying no wealth tax on their colossal assets. Do our rulers know about the canons of taxation?

Adam Smith in his 1776 Wealth of Nations propounded the following four principles of taxation (commonly known as canons of taxations):

—        EQUITY: The tax payable should accord with ability to pay or taxable capacity.

            [In Pakistan the poor are taxed although they have no ability to pay and the rich enjoy exemption notwithstanding taxable capacity. Recently the Government abolished wealth tax to safeguard the vested interest i.e. people enjoying assets as a result of loot, tax evasion, political bribes and gallantry awards.]

—        CERTAINTY: The taxpayer should know exactly what is being taxed, how much he has to pay and when he has to pay it, meaning that the law should be clear and unambiguous and the tax authorities’ interpretation of it should be readily available.

            [In Pakistan, there is no certainty about taxes. The administrative authorities keep on playing havoc with tax laws through the infamous SRO system. Taxpayers have been left to the amazing wilderness of confused laws that are vulnerable to varied interpretation and authorities’ explanations add further confusion].

—        CONVENIENCE: The tax should be payable in a manner and at a time convenient to the taxpayer.

            [CBR makes it a point to make the life miserable for the taxpayers. The procedures for collection of taxes are cumbersome and most inconvenient in Pakistan].

—        ECONOMY: Enforcement and collection costs should be reasonably proportionate to the receipts.

            [Quite the opposite is the situation in Pakistan. The CBR has reduced its cost of collection by shifting a substantial part of it to the withholding agents / businessmen and that too without giving any compensation. In all the civilised societies, tax authorities allow percentage deduction to withholding agents/businessmen to compensate for the cost of complying with collection of taxes as an agent.]

There are flagrant and perpetual violations of established principles of taxation by the State, yet the people of Pakistan, who are the most heavily taxed in Asia, are being threatened every day by the tax authorities of dire consequences. It is high time that the Government should show a conciliatory gesture by promulgating the Taxpayers’ Bill of Rights. The economic survival of the country now lies in paying taxes. All the citizens of Pakistan who are liable to pay taxes should perform their national duty honestly and without any hesitation. The State must ensure them full protection of their rights, transparency in utilization of taxpayers’ money and implementation of a just, equitable and fair tax system.