EDITORIAL: Ministry of Finance’s intention to maximise revenue through allowing sharing of data between the Federal Board of Revenue (FBR) and National Database and Registration Authority (Nadra) with the rationale that this would increase the percentage of revenue from direct taxes, premised on the ability to pay principal, rather than the existing system of heavier reliance on indirect taxes whose incidence on the poor is certainly greater than on the rich, through the passage of an ordinance may defeat its objective as other non-formal means for transactions may begin to be preferred. Examples include the ongoing practice of undated cheques, in hundreds of thousands, doing the rounds for years, as well as a proliferation of cash transactions that would remain undocumented. It is for precisely this reason that all the stakeholders need to be taken on board, stakeholders who have so far resisted such a move, including State Bank of Pakistan (SBP), commercial banks and financial institutions.
The Income Tax Ordinance 2001 does not allow FBR to share information with any third party like Nadra and the banking laws also bar the sharing of information about bank accounts with a third party. To circumvent these laws with the objective of FBR sharing data with Nadra of those it believes are operating in both the legal and illegal sector of the economy and Nadra then providing access to information that allows for higher tax collections the government is reportedly preparing an ordinance with three-month applicability extendable once only for a similar period. But at the end of the day the government will have to return to parliament for its stamp of approval for this to be legal.
Disturbingly, the assumption here is that once the data on the suspects who are “wilfully” and “knowingly” not paying the full amount of taxes due, based on their actual as opposed to declared assets and expenditures, then in the event that the Ordinance lapses that information would remain available to FBR for the purpose of imposing the tax. In this context, it is relevant to note that the recently-sacked Chairman FBR stated last month that “the artificial intelligence engine would determine tax liabilities based on data of registered and unregistered persons and standard deviations would be minimum only when filers’ and non-filers’ data is available for analysis,” but vowed to protect taxpayers’ data from misuse, pledging that it would be expunged after completing the exercise.
The Law Division reportedly clarified to FBR that it could only share non-registered persons’ tax record with Nadra in light of clause 216 titled disclosure of information by a public servant; however FBR amended clause 216 in the Finance Act 2018, allowing Nadra access to FBR data for the purpose of broadening the tax base. And had shared registered persons’ tax records with Nadra two years ago, in 2019, when it handed the tax record of income tax filers from 2014 to 2018 to the Authority. However, FBR is unwilling to do so now stating that they are fearful that there may be a leak from Nadra and the data may become public knowledge; FBR’s recent data leak, however, raises questions about its own vulnerability in maintaining data security and confidentiality.
This is highly irregular and patently illegal and Business Recorder would urge the government not only to desist from its by now usual practice of legislating through ordinances and bypassing parliament repeatedly but also to consider whether its objective of raising its revenue would be achieved through the promulgation of an ordinance as it would not only be challenged in court but may also boost the parallel illegal economy that reportedly accounts for nearly 50 percent of the legal economy.
Copyright Business Recorder, 2021
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