EDITORIAL: Advisor to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Sheikh launched the tax directory amidst much fanfare for the year ending 30 June 2018, a fiscal year when the portfolio of finance was held by three individuals - Ishaq Dar who left the country in October 2017 and was replaced by Miftah Ismail appointed first as the advisor and then as the finance minister till the end of the PML-N tenure on 31 May 2018 followed by the caretaker finance minister from 1 April 2018 till the Pakistan Tehrik-i-Insaaf government was installed in August 2018.
The tax directory for 2018 indicates four disturbing elements. Firstly, as per history, Sindh remained the largest contributor to tax revenue, 45 percent, compared to Punjab's 34.99 percent. While this may partly be attributed to the fact that trade with the rest of the world is mainly carried out through Karachi port (Gwadar port is yet to be fully developed and operational to this day) with associated taxes collected at Karachi (though this trend should decline as dry ports have been established in major upcountry cities), yet what is astounding is that two of Karachi's markets paid more tax than the combined markets of Lahore. Additionally, Faisalabad's contribution to exports, total productivity and market share is considerable; however, its contribution to total tax revenue paled into insignificance when compared to Karachi. This has led to considerable angst amongst the residents of Karachi who rightly argue that in spite of being the highest contributors to taxes collected in the country, the quality of the city's infrastructure remains appalling.
Secondly, total country-wide number of filers was only 2,852,349 million (1.3 percent out of a total population of 212 million) with filers in Punjab accounting for 59.5 percent of total filers, Sindh's share was 27.34 percent, Khyber Pakhtunkhwa's 6.01 percent, Balochistan 1.83 percent and 5.30 percent in Islamabad.
Tax directory indicates that companies contributed 56 percent to the total tax collected in fiscal year 2018 while they form only 2 percent of total tax filers, non-salaried individuals contributed 21 percent, and salaried individuals, whose tax is cut at source, contributed 14 percent.
And finally, the tax paid by Imran Khan predates his election victory as does the returns filed by the rest of his cabinet members and if the amount of income tax paid by them is too little then the blame rests with the tax policies of the previous government, including not taxing the income of the rich landlords as well as the tax evasion/avoidance allowed; and in not going after non-filers who were liable to pay tax according to the taxation laws of the land.
What must be a source of serious concern to the Khan administration is that while there were many shortcomings in the tax structure during the PML-N administration yet the tax to Gross Domestic Product ratio in 2018 was 11.1 percent which contrasts favourably with its own two years in government - 9.9 percent in 2019 and 9.4 percent as per the budgetary estimates for fiscal year 2020. There is therefore an urgent need to implement tax reforms that not only would be equitable, fair and non-anomalous but also bring non-filers into the tax net instead of continuing to provide a reprieve to non-filers by allowing them to pay a higher tax on purchase of specific items/services under withholding tax regime (and mislabeling it as a direct tax that at present accounts for over 70 percent of taxes collected).
Copyright Business Recorder, 2020
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