The same position prevailed for tax year 2017. Out of total registered companies, only 42% (37,130) filed returns! If FBR cannot enforce section 114(1) of the Income Tax Ordinance, 2001, whereby all companies are obliged to file returns, then what other evidence is required for its ineffectiveness and incompetence? The SECP has complete data of all the registered companies. Section 114 binds even loss-bearing and dormant companies to file returns. It is also a matter of fact that over 200,000 salaried persons working in various government departments though having taxable income opted not to file returns! The same is the case for private sector. About 5 million business houses opted to remain non-filers though having annual taxable income exceeding Rs. 400,000. It is worthwhile to mention that they are paying various withholding taxes, especially through electricity and mobile bills, and FBR has their complete data!
The province/region-wise details of total filers and collection are provided by FBR in Tax Directory Analysis (for year ending 30 June 2018 on the basis of income tax returns filed up to 14 September 2020). However, it has not been made clear in FBR in Tax Directory Analysis that whether contribution of provinces/regions/cities is in respect of year ending 30 June 2018 that is taken for distribution under National Finance Commission Award or on the basis of returns filed up to 14 September 2020 that is even after 26 months and 15 days of the close of period for tax year 2018. This vital point has been ignored. The complete data of filers and contribution by category, province, region and that of major markets is available at:
Parliamentarians' total tax payment is Rs. 574,051,288 as per column 3 (tax paid). In column 4 (Total Tax Paid by AOP in which Taxpayer is a member) tax paid by business entity is given but share of legislator is not disclosed in the said Association of Person (AOP) that is added for rate purpose, if tax is paid by an AOP! In the beginning it is clarified that "certain Parliamentarians, whose names are marked by* have share income as Members of Associations of Persons. Since, Association of Persons pay tax as a separate entity, such share is not taxable in the hands of the Members".
The Adviser to Prime Minister on Finance & Revenue, Dr. Abdul Hafeez Shaikh, while launching the tax directory, said that 311 MNAs and 90 senators submitted their income tax returns for the year 2018 and paid Rs. 800 million. He quoted a wrong figure ignoring the difference between column 3 and 4 of Parliamentarians' Tax Directory for Tax Year 2018. For example, Industries and Production Minister Hammad Azhar paid Rs. 22,445 as per column 3 but tweeted that his partnership firm paid Rs. 59,421,700 (as mentioned in column 4), in which his contribution was Rs. 18 million on account of his shareholding.
FBR also failed to disclose the total tax paid by all taxpayers as per data contained in Tax Directory of all Taxpayers for Tax Year 2018, so how one can determine share percentages mentioned in FBR in Tax Directory Analysis of various categories of taxpayers, provinces, regions and cities etc without knowing the base number (total collection) from which these are calculated! Nobody has raised this point! For example, FBR in Tax Directory Analysis in respect of returns filed up to 14 September 2020 shows income tax collection from 496 major cities. The total of which comes to Rs. 1,026,156,746,886. However, we cannot determine its percentage to total tax collection as this figure is not revealed in documents released on September 16, 2020.
It is clear from 'Parliamentarians' Tax Directory for Tax Year 2018', 'Tax Directory of all Taxpayers for Tax Year 2018 and Tax Directory Analysis that the rich and mighty segments of society and traders are not paying income tax due from them but on the contrary millions not earning taxable income are subjected to withholding tax of 12.5% as mobile use. According to Pakistan Telecommunication Authority (PTA), the total number of unique cellular subscribers (having more than one SIM and actively paying bills) was 90 million during the fiscal year 2017-18 whereas return filers for tax year 2018 up to 14 September 2020 was only 2,852,349. How many of these are taxable is not revealed by FBR. The majority comprises those having below taxable income or nil income, like students still dependent on parents but having mobiles. Will FBR give refunds to all of them if their income is below taxable limit?
The latest data on website of PTA shows the total number of subscribers as on July 31, 2020 at 167 million (78.4% teledensity), out of which 81 million are 3G/4G subscribers (39.2% penetration), 3 million basic telephony users (1.1 teledensity) and 83 million broadband subscribers (36.9 penetration). Amongst them about 95 million are unique subscribers. All are subjected to 12.5% advance and adjustable income tax. FBR should determine true tax base from this data that out of 95 million how many are liable to income tax using details of their assets, travel abroad, payment of utility bills, fees for children, etc.
Those below taxable limit, many of whom benefited from Ehsaas Emergency Cash Programme, during lockdown due to Covid-19, though paying tax at source as mobile users, cannot be forced to file tax returns. This will be against the supreme law of the land that is Article 4(c) of the Constitution which says: "no person shall be compelled to do that which the law does not require him to do". The Prime Minister must take note of extreme injustice inflicted on millions to pay advance income tax when they are not chargeable to tax and ask FBR to stop forthwith the vicious propaganda that Pakistanis are tax dodgers! In the existing financially hardship days, advance income tax on mobile use and commercial electricity bills by those having below taxable income must be waived immediately, and amounts already collected for all previous years should be refunded without filing of returns using the same data portal as for Ehsaas Emergency Cash Programme.
In Pakistan, the ultra-rich are avoiding tax obligations whereas millions having no income or incomes below taxable limit have been forced to pay advance tax. It is gross violation of their fundamental rights. Why should the poor people engage a tax adviser to file return and pay money to get a paltry amount of refund? FBR's statistics thus do not present the correct figures regarding income tax payers in Pakistan. They are only taking data on the basis of returns filed. It is their duty to issue notices to those having taxable income, paying tax at source, yet not filing returns. Out of total income tax collection during 2016-2019, the percentage of withholding taxes and voluntary payment is 90%. It proves beyond any doubt that blame shifted to business houses, especially SMEs, for alleged non-payment of taxes, is just an eye-wash on behalf of FBR to hide its own inefficiency and incompetence.
In the wake of heavy economic toll of Covid-19, small and medium enterprises (SMEs) already heavily taxed through withholding tax mechanism are victims of highhandedness of tax laws and officials at federal and provincial level. The detail of indirect taxes paid by them is 19.5% sales tax on services to all the four provinces, for users in Islamabad Capital Territory (ICT) 17% federal excise duty [FED], plus 10% service/maintenance charges. No relief is given in the Finance Act, 2020 from advance tax of 12.5% on mobile and internet users or 17% FED in ICT, especially in the event of the shift of academia to online classes and professionals forced to work from home. In the provincial budgets for fiscal year 2020-21 of Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan as well, the high rate of tax is maintained for telecom sector.
The crumbling and corrupt tax apparatus is the root cause of the present scenario. Tax officials persistently squeeze and penalise existing taxpayers on the one hand but on the other, join hands with and protect big tax evaders though amnesties and immunities. The massive over and under-invoicing is not possible without their connivance.
It is FBR's failure to enforce provisions relating to filing of returns by people having taxable income, for which it cannot blame others. However, it also reflects on the legislators that give extraordinary tax exemptions and immunities to the affluent classes. The PTI Government must also look into elite capture and take into account the fact that as many as 135 persons, named in the OECD database, availed the 2018 tax amnesty scheme of the PML-N and declared Rs. 62.4 billion in assets. They paid only Rs. 2.9 billion, whereas, their actual liabilities without the tax amnesty could have been Rs. 43.7 billion, thus getting a relief of Rs. 40.8 billion from the last government. About 56 people, whose data was shared by the OECD, availed the PTI's tax amnesty scheme and declared Rs. 31.8 billion worth of assets. They paid only Rs. 1.7 billion and got a relief of Rs. 20.6 billion.
It is high time FBR should be insulated from all political and other pressures and be made an effective body to enforce tax laws across the board without fear and favour, justly and not through coercive measures. There should be a proper system of check and balances and officers indulging in erratic assessments should be subjected to punitive action and awarded pecuniary damages from their own pocket by an independent authority after the lapse is established by the final fact-finding appellate authority.
(The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS))
Copyright Business Recorder, 2020