EDITORIAL: The bill to grant tax authorities sweeping powers to enforce compliance was tabled and is expected to pass easily through parliament.
It will not apply to parents, spouse, son (below the age of 25) unmarried daughter (divorced or widowed) and children with disabilities — a selection of relatives that may provide loopholes for a non-filer to legally bypass the laws as it raises questions: what would be the law’s applicability on a son above the age of 25 (who may not be gainfully employed), an unmarried daughter or a child with disabilities (given that the nature of the disability has not been defined and may include dyslexia which is a learning disability with 12 million Pakistani children diagnosed with it).
The law envisages barring the opening of bank accounts to non-filers (though such measures in the past did lead to a significant rise in the parallel illegal economy which at present is as high as around 40 percent of the legal economy) except Asaan account which allows low income unbanked or under-banked individuals to open an account.
It makes it mandatory for banks to report high risk individuals engaging in financial activities beyond their declared assets and turnover though banks do not have information and therefore the capacity or ability to assess the extent of a client’s assets, declared or otherwise, or total turnover if the client uses both the documented and undocumented economy to park his assets as is almost certainly the case.
The law would further disallow registration of a vehicle with engine capacity more than 800cc with the exception of rickshaws, motorcycle rickshaws, tractors and small vehicles.
Tractors are usually purchased by the upper income strata landlords and their exclusion is baffling. And finally, it will empower Federal Board of Revenue (FBR) officials not to allow registration or access to other associated legal documents for purchase or transfer of immoveable property (whose value will be notified), sale of securities including debt securities or units of mutual funds.
Products sold without proper tax stamps, stickers or bar codes will carry a fine while those exploiting input tax adjustments will be dealt with through automated risk management system to flag questionable claims.
This of course raises questions with respect to the thriving parallel illegal economy given that the products that are sold with proper tax stamps, stickers or bar codes are limited and mostly restricted to cities and major retail outlets.
This law would almost certainly be opposed in the assembly not only by the opposition, which can be dismissed as opposition for the sake of opposition, but also by members of the ruling coalition — be they sitting on the treasury benches or on the opposition benches.
The basic rationale for this law, which grants punitive penalties, including sealing businesses and seizing assets, suspending bank accounts, would almost certainly be challenged in a court of law.
Though the law envisages appeals to be filed with the chief commissioner of FBR’s inland revenue wing within 30 days with the pledge that measures will be lifted within two days and unless the stakeholders can exert sufficient influence on the courts it is unlikely that the courts would not grant a stay order.
In a country where even the finance minister concedes that the people are ready to pay more tax but they are unwilling to deal and interact with the tax authority, i.e., the Federal Board of Revenue (FBR). This indeed is a reality and an extremely worrisome element in the national effort to raise the tax-to-GDP ratio.
The finance minister is spot on in saying that “it is not possible that you are citizen of Pakistan and you do not want to deal with the tax authority”. It is, therefore, an absolute imperative that steps be taken to restore the credibility of the FBR and that would not only require a cultural change but also more accountability within the taxation machinery as regards frivolous assessment orders that fall flat in courts of law and tantamount to harassment of taxpayers, who rightly perceive it as extortion.
To conclude, as repeatedly noted by us in these columns, Pakistan’s extremely low annual tax collection is not an administrative issue but attributable to a tax structure that requires urgent reforms, which are unlikely to be implemented in the short term.
The budget for the current year, as was the case in previous years, continues to tax the already taxed, which is a source of considerable angst amongst the general public as indirect taxes, whose incidence on the poor is greater than on the rich, form 75 to 80 percent of all taxes collected.
The best option would be for the government to slash its current expenditure that requires voluntary sacrifice by the major recipients for the current year and begin implementation of politically challenging tax reforms to be effective from July 2026 that would reduce the onus of implementing such draconian measures with loopholes.
Copyright Business Recorder, 2024
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