Giving a realistic picture of tax culture in Pakistan, the FBR Chairman informed the committee that the tax laws had given massive exemptions to influential groups and powerful lobbies through SROs. Unfortunately, however, general public finds it extremely difficult to start a new business due to discriminatory tax laws. The entire tax system is like an NRO for the elite class whereas the poor people cannot start their businesses in the existing tax environment, according to him.
He said powerful sectors had obtained extraordinary tax exemptions through SROs issued from time to time, adding that a narrow tax base in the country was evident from the fact that there were 805,465 corrected numbers of taxpayers during 2011. Additional revenue and documentation measures could generate Rs 250 billion which can raise the Tax-to-GDP ratio by one percent and the country could increase 2-2.5 percent Tax-to-GDP ratio with the help of system, withdrawal of unnecessary exemptions and removal of distortions in the tax system.
The FBR Chairman also said that potential taxpayers were identified through consumption and behavioural patterns, including repeated foreign travels, multiple bank accounts, heavy utilities'' consumption, expensive vehicles, weapons, credit cards, posh residences, education, profession and family patterns (vacations, children studying abroad, etc). If all persons are taxed with the help of consumption behaviour, no income can be concealed anywhere in the country, according to him.
With the help of this "data mine", 2.9 million tax evaders were identified; 2.2 million non-NTN holders and 0.7 million NTN holders but non-filers/evaders were also identified, Hakim said. He said the FBR was now equipped with "a goldmine of data" and its effective utilisation would facilitate the generations to come. He added that his department had very clear viewpoint on the documentation of potential persons. "This data is a goldmine and we should have to use it very carefully to avoid misuse of the data," FBR Chairman said. Around 200,000 persons would be documented without allowing them to avail registration scheme. According to him, these persons have exceptionally high expenditures and they have not even obtained the National Tax Numbers (NTNs). They will be registered under the existing tax laws. The remaining individuals would be allowed to avail the schemes. Once these persons are in the tax net, the department can ask them to file their income tax returns next year.
He said if the data of 2.9 million tax evader was given to the tax machinery for further action, it might not achieve the desired results. In such a situation, FBR would not be able to get any tax. Therefore, his department wanted to bring these 2.9 million persons into the tax net with the help of amnesty schemes. "The legal process is very lengthy and amnesty scheme is the only way to bring these potential persons into the tax net," he said.
In response to a question on corruption in the tax machinery, the FBR Chairman said that as Nadra chairman he used to transfer Nadra employees to significantly reduce the incidence of corruption. "However, you can decide what should be done in the tax machinery, he added.
About the benefits of schemes, Hakim said the implementation of schemes would deepen and broaden the tax base; lifetime value of repeat tax payments. Database value will be much higher than yearly value; database will be a great help with creation of analytics for automatic detection. Moreover, it will help document the economy; improve Tax-to-GDP ratio; cause buoyancy in national economy; increase tax base & collection. According to him, the government will lower the tax rates in coming years and encourage people to bring assets to Pakistan.
In the past, the survey of markets and shops in 2000 remained unsuccessful as it was done through force without the support of any authentic data or third party information. "It is not possible to forcefully bring these individuals into the tax net. We cannot document persons by using force which is evident from the past experience of tax survey of 2000. However, it could be done by providing them an opportunity to voluntarily come within the documented regime," he said. Referring to investment made in Dubai, FBR Chairman said that the biggest weighing scheme had been seen in the form of investments taken to Dubai by local residents to whiten their money.