According to Pakistan Telecommunication Authority (PTA), prior to biometric verification, there were 140,022,516 mobile users in Pakistan [July 2014]. In April 2015, this figure fell to 131,865,579. A large number of mobile users, not less than 50 million (if we exclude multiple and inactive subscribers), paid both 14% income tax and 19.5% sales tax in 2014, but only 1.7% of mobile users (individuals) filed income tax returns. FBR did not bother to utilise data available with the telecommunication companies to detect the richer ones and force them to file tax returns. On the contrary, it resorted to ill-advised actions of imposing withholding taxes even on those who have no incomes or incomes below taxable limit and that too at higher rates.
Majority of the mobile users do not have taxable income, hence, are not legally required to file tax returns. If they do so only to claim the withheld tax, they fear becoming victims of the excesses of FBR officials and exploitation at the hands of unscrupulous tax advisers. In any case the cost to reclaim such amount would be much higher. It is an established fact that majority of the ultra-rich do not bother to file tax returns-they are happy with withholding provisions as these take only a fraction of their mammoth incomes. This confirms beyond any doubt the ineffectiveness and incompetence of FBR. Our real dilemma is that the rich and mighty are not paying taxes according to their ability. In 2014, only 32,031 persons paid tax between Rs 1,000,000 and Rs 10 million, and just 3,663 declared tax over Rs 10 million.
At present our population, according to Economic Survey of Pakistan 2014-15, is 191.71 million, out of which 75.2 million constitute urban while the rural is 116.5 million. Out of total population, 20 million are below the age of 15 years (they are dependants) and 30 million are chronic poor earning less than two dollars a day. Our labour force, 10th largest in the world, is around 60 million, out of which 56.5 million are employed. Rural labour force of 43.5 million is earning below taxable income or agricultural income falling outside the ambit of Income Tax Ordinance, 2001. Reading all these facts together, the total persons liable to income tax cannot be more than 10 million. FBR is extorting income tax from over 50 million active mobile users alone!
At present, entire taxable population and even those having below taxable incomes are paying income tax at source, yet FBR is engaged in a vicious propaganda that people of Pakistan tax cheat and that our tax base is narrow! This is highly lamentable on the part of apex revenue authority especially when all traders using commercial electricity connections are paying advance income tax under section 235 of the Income Tax Ordinance, 2001.
All traders pay income tax with electricity bills, and if monthly bill is up to Rs 30,000, tax paid is treated as minimum tax with no claim to a refund! In the presence of this section, read with section 181AA, was there any need to impose tax on banking transactions by non-filers? Even the affluent domestic electricity users are subjected to withholding tax if bill amount is Rs 75,000 or above [the limit was Rs 100,000 prior to July 1, 2015]. Why FBR wants tax returns from even those who have no taxable income? More "filers", more "speed money", more earnings for unscrupulous tax advisers (sic)-majority comprising lower staff and even some high-ranking officers of FBR.
It is an undeniable fact that FBR has miserably failed to get due tax from the rich and mighty and thus its main emphasis is on withholding taxes that constitute about 60% of total income tax collection. Another 30% comes from voluntary payments, advance tax and tax with returns. FBR's own effort is only to the extent of 10%.
There are no efforts to tap the actual tax potential as it would be hurtful to the rich, majority of which are non-filers, despite having undeclared, untaxed wealth and ruling this country as a matter of right. According to the latest Household Integrated Economic Survey (HIES) conducted by the Pakistan Bureau of Statistics, five million individuals have annual taxable income of Rs 1.5 million. If all of them file tax returns, income tax collection from them, at the prevalent tax rates, would be Rs 1500 billion. If income tax collected from corporate bodies, other than non-individual taxpayers and individuals with income between Rs 400,000 and Rs 1,000,000 is added, the gross figure would not be less than Rs 5000 billion. FBR collected less than Rs 1000 billion in fiscal year 2014-15. In indirect taxes as well due to leakages, the collection is not more than 50% of the actual potential. In 2013-2014, FBR collected Rs 1002 billion as sales tax, Rs 139 billion as federal excise and Rs 241 billion as customs duties. Collection under these heads should have been at least Rs 3000 billion.
The actual potential of Pakistan is not less than Rs 8 trillion at federal level alone. This is achievable provided the mighty segments are properly taxed, tax machinery is overhauled, leakages are plugged and all exemptions to the privileged classes are withdrawn. Banks, Wapda, PTCL and mobile companies are fully computerised and collect taxes on behalf of FBR. By using their database, FBR can easily determine a fair tax base. Provisional assessment can be made in respect of persons who are not filing tax returns.
In Pakistan, the ultra-rich are avoiding tax obligations but millions having no income or incomes below taxable limit have been forced to pay advance tax. It is a gross violation of Article 4 of the Constitution assuring that the State cannot force a person to do what law does not require him to do. Why should poor people engage a tax adviser to file return and pay money to get refund? The extreme injustice in tax system demands a widow to pay 10% non-adjustable withholding tax on her income of Rs 300,000 [taxable limit is Rs 400,000] from an investment made with national savings centre, from the funds she had received from pension/gratuity funds on the death of her husband. From the same source, a rich person pays only 10% tax on income of Rs 2 million, whereas he should be taxed in the highest slab of 35%. Over 75% taxes collected by the federal and provincial governments are indirect in nature, the burden of which is borne by the poor and middle-class with scanty resources and no ownership of assets.
It is FBR's failure to enforce provisions relating to filing of returns by people having taxable income, for which it cannot blame the public at large. Are the people of Pakistan responsible for this pathetic performance? The responsible officials of FBR should be taken to task for this gloomy state of affairs. It is high time that FBR should put its own house in order and enforce tax laws across the board rather than blaming the already over-taxed people of Pakistan for its own managerial fiascoes and established record of protecting the rich and mighty. It must be remembered by all that non-collection of tax where due is as detestable as its collection, where it is not due.(The writers, lawyers and partners in law firm HUZAIMA IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)