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A collection of tax where it is not due is as detestable as its non-payment when it is due-Nasim Sikander J, CIT Companies, Lahore v State Cement Corporation (Pvt) Ltd, Lahore 2002 PTD 1603 This deprivation [collecting taxes in advance] results in unjustly enriching and benefiting the department-Syed Mansoor Ali Shah J, Sui Northern Gas Pipelines v Deputy Commissioner of Inland Revenue, etc (2014) 110 TAX 221 (H.C. Lah.)

In a civilised society, the government demonstrates recognition and gratitude to citizens who pay their taxes as well as to those who act as withholding tax agents on the State's behalf and collect taxes for the well-being of their fellow countrymen. The State not only acknowledges their services but also authorises them to hold back a certain percentage of collection as their charges to compensate expenses incurred by them in their performance of the official function. In Pakistan the converse is the case. The law says no one is entitled to compensation for collecting tax on behalf of the State. Not only are withholding agents the most insulted and humiliated, citizens are deprived of money by way of withholding provisions and on asking for refund.

Millions of those who are not liable to tax suffer heavy withholding of taxes. They have to file tax returns and claim refunds online. This is in violation of Article 4(c) of the Constitution which says that a person cannot be compelled to do which the law does not require him to do. If he/she has below taxable income, why are they subjected to advance tax collection for which they have to spend money, in case more than what they have to claim as refund? The same is the case with withholding agents. They are treated as "slaves", subjected to forced labour with no financial compensation. This is in gross violation of Article 11 of the Constitution. No service fee is allowed to withholding agents for man-hours and other expenses they incur to collect taxes on behalf of the government [section 168(6) of the Income Tax Ordinance, 2001]. Adding insult to injury, they are subjected to penal actions even when tax is paid by the person on whose behalf it was collectable. This shows the ugly face of our tax system and machinery that collect hardly 10 percent of total revenues with its own efforts and for the rest not only uses the citizens of Pakistan as withholding agents but also humiliates them. One does not need any other indicator to gauge the level of high-handedness, arbitrariness, sadist mindset and cruel attitude that prevails in all revenue authorities-both federal and provincial. The tax baboos sitting in the tax agencies get kudos from the panjandrums of the International Monetary Fund and the World Bank for these excesses. Through these oppressive measures the tax authorities are destroying the socio-economic fabric of society, depriving citizens of their self-esteem and their legal rights guaranteed under the Constitution of Pakistan.

There are more than 60 provisions in the Income Tax Ordinance, 2001 that are related to deduction or payment of income tax in advance. This implies that even before one can determine one's income and amount of income tax payable for a tax year, he/she may have already paid a substantial amount of tax as advance. For example, if a salaried individual earns Rs 2,500,000 for the period starting from 1st July 2016 to 30th June 2017 (tax year 2017), by the time he/she files returns as on 31st August 2017, approximately Rs 259,500 tax would have already been paid in the form of deduction from salary received from the employer each month. Besides salary, there may have been payments of tax with telephone bills, tax paid with a child's school fee, tax paid to the provincial authorities during renewal of the token for self-owned vehicle, tax with dividend, tax while withdrawing money from savings account, tax deducted on profit on debt on savings account, etc. Some of these advance payments/deductions can be adjusted against final tax liability while some, like on dividend and profit on debt, would comprise final tax liability, especially for individuals and associations of persons. This is all very well, even though there are many filers who would not be aware of the fact that many of their advance payments of tax fall either in the final tax or a separate block of income category, wherein these are not adjustable against their admitted tax liability computed on the basis of total income. In other such instances, this payment or deduction of tax could become a minimum tax liability, in which case if the actual tax liability is less than this becomes the final tax. These provisions are meant for filers of returns but what is the case of those who do not file their returns or those who are commonly known as non-filers?

Through the Finance Act, 2014, the government introduced a "unique" concept with respect to varied rates for deduction (withholding) of tax in the case of filers and non-filers of return of income, adding to the burden of withholding tax agents who have to verify whether a person whose advance tax is to be deducted or collected is mentioned in the active taxpayers' list or not, since they need to determine the rate at which tax is to be withheld, which is higher in the case of non-filers.

With this background, it is important to know about the persons who are required to file a return of income under the law. For this, relevant provisions of sections 114 and 115 of the Income Tax Ordinance, 2001are reproduced as under:

114. Return of income.- (1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:

(a) every company;]

(ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year; or

(ac) any non-profit organisation as defined in clause (36) of section 2;

(ad) any welfare institution approved under clause (58) of Part I of the Second Schedule;]

(b) any person not covered by clause (a), (ab), (ac) or (ad)] who,-

(i) has been charged to tax in respect of any of the two preceding tax years;

(ii) claims a loss carried forward under this Ordinance for a tax year;

(iii ) owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory ;

(iv) owns immoveable property with a land area of five hundred square yards or more located in a rating area;

(v) owns a flat having covered area of two thousand square feet or more located in a rating area;

(vi) owns a motor vehicle having engine capacity above 1000CC;

(vii) has obtained National Tax Number; or

(viii) is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees five hundred thousand;

(ix) is a resident person registered with any chamber of commerce and industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan.

(1A) Every individual whose income under the head 'Income from business' exceeds rupees three hundred thousand but does not exceed rupees 7[four hundred thousand] in a tax year is also required to furnish return of income for the tax year.

"115. Persons not required to furnish a return of income.-]...............

(3) The following persons shall not be required to furnish a return of income for a tax year solely by reason of sub-clause (iii) of clause (b) of sub-section (1) of section 114-

(a) A widow;

(b) an orphan below the age of twenty-five years;

(c) a disabled person; or

(d) in the case of ownership of immovable property, a non-resident person.

(4) Any person who is not obliged to furnish a return for a tax year because all the person's income is subject to final taxation under sections 5, 6, 7, 148, 151 and 152, sub-section (3) of section 153, sections 154, 156 and 156A, sub-section (3) of section 233 or sub-section (3) of section 234A shall furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed.]............................."

Combined reading of the above sections clearly shows that there are some persons who are legally NOT required to file a return of income, among whom are conspicuously those persons whose annual total income chargeable to tax is below Rs 400,000, which is the case of many labourers, small traders and vendors, students, and users of mobile phones. However, if the Commissioner so requires, he can issue a notice for filing a return of income, even to such persons but unless there is some specific information in the possession of the authorities, this provision is rarely invoked.

The question is: where it is legally not a requirement to submit a return, why such harsh measures for non-filers? If income tax (no matter how small the amount) is withheld at all, from say mobile phone bills or pre-paid cards, then in order to obtain their refund they are supposed to file a return, and that too online. This means that they must be computer literate, have access to the internet facility, and, most important, have the ability to fill up the return form. An educated person might be able to perform these functions, but what about an illiterate labourer or an artisan? Besides, how would they know about their rights unless they are made aware of them? How would they know that along with sales tax they have also paid income tax even though they were not liable to this tax? Even if somehow they do get to know this fact, who is to guide them about what is to be done? Are they supposed to engage the services of expensive tax consultants in order to get a small amount of refund? Any sane person who can make a cost-benefit analysis would prefer to forego this income tax rather than entangle himself with ruthless tax authorities and unscrupulous tax lawyers and accountants. A closer scrutiny would reveal that the government, in order to fill its coffers, is ready to deceive innocent citizens and deprive them of their hard-earned money. In doing so it has also given those non-filers subjected to heavy tax deductions for a number of transactions a free hand for defiance of the law.

According to the latest report of Groupe Speciale Mobile (GSMA), there are 90 million unique mobile users that paid both 14 percent income tax and 19.5 percent sales tax. However, about 1.5% of mobile users filed income tax returns in 2017. According to the FBR's own admission, it received 1,039,291 returns till March 9, 2017. An earlier disclosure by the FBR confirms that in 2016 return filers were 1.1 million. It is pertinent to mention that in 2011 this number was 1,443,414. 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 Pakistani individuals filed income tax returns in 2006-07. This shows that the FBR has lost one million return-filers since 2006-07, despite prescribing higher withholding tax rates for non-filers. The FBR needs to conduct a study to find out what has gone wrong after penalizing non-filers! They are happy to pay more by way of advance tax than to file returns.

Instead of nabbing big tax evaders, compelling corporate bodies, parliamentarians, judges and military high-ups to discharge their obligations of filing returns and paying their due share, bridging the obnoxious tax gap whereby billions remain irrecoverable, registering business houses, checking leakages and rampant corruption within their ranks, cutting corners in its expenditure, incentivizing economic growth, the government conveniently picks on the poorest of the poor to quench its thirst for more and more revenue. What kind of government strips its needy for the luxury of its officials? What kind of laws are being thrust upon people where they are made to do what the Constitution does not require them to do? When the Income Tax Ordinance does not legally bind them to file a return of income, why do government officials insist that they do so in order to claim refunds, to obtain, which, by the way, is next to impossible?

A handful of target-oriented, imprudent and self-acclaimed wizards, sitting as policymakers think that by introducing such illogical and unconstitutional provisions they would improve their revenues but they fail to realise that these measures are actually causing backlash and disregarding all norms of justice and fair play, to say nothing of the real philosophy of taxation. Due to their short-sightedness, the number of income tax return filers is rapidly declining with each passing year. People have become so indifferent to the tax authorities that they refuse to register themselves, knowing very well that once these officials find their way to them, their lives will be made miserable by their unholy demands and inhuman attitude. They lack faith in the justice system and are wary of long and expensive bouts of litigation that culminate as a result of high-handedness of the revenue authorities, as well as the appellate system.

Besides, many argue that when they have already paid heavy taxes in the capacity of non-filers, why should they aggravate their woes by filing returns? They are fully aware that to prevent their money from being squandered, it is best to stay miles away from the tax authorities or falling into the trap of unethical professionals. Time wasted in dealing with them could be utilised to earn much-needed money with which they can purchase the fundamentals of life denied to them by the government.

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are in the Adjunct Faculty at the Lahore University of Management Sciences)



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