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Not only is the 'block' that constitutes honest taxpayers plausibly angry at the 'amnesty' granted to traders under the Voluntary Tax Filing Scheme (VTFS), country's political opposition has also strongly reacted to the government's controversial move. Neither has, however, come up with any workable solution to bring retailers into the tax net in order to broaden the present woefully narrow tax base. Various 'fixed tax schemes' and collection by provincial authorities and local bodies under the guise of business license annual registration fee had been proposed, in the past, but the federal authorities have not concurred. It is easier to be an arm-chair critic than to take a decision when in power. Politicians can only be critical of government policies when they are out of power. However, once lady luck smiles on them, they obligingly opt for solutions proposed by the bureaucracy as they do not do their homework when they found themselves in political wilderness. Similarly, people at the top within the bureaucracy, well aware of their dependence and limitations of the field formations of the Federal Board of Revenue (FBR), opted for ease of collection. The fact of life is that not only are our tax collectors corrupt, taxpayers are also not really kosher; while the ingenuity of our businessmen knows no bounds. Those who are making legitimate noises are those whose tax is deducted days before they actually get their monthly salaries. Direct tax collections in an indirect mode are only done because of threat of getting caught upon scrutiny. In addition, our tax system leaks like a sieve. When you have 'Benami law' as well as the liberalisation of foreign exchange law to facilitate overseas Pakistanis that allows you to bring in dollars through the banking system with no questions asked, the 'Benami' law, tax on gifts, etc, there is little left for the FBR officials and that too they are found wanting in doing well. One cannot allow banks to reduce deposits as government itself is greatly dependent on banks for budgetary support. We have tried deduction of tax on cash withdrawals. After imposing withholding tax on bank transactions the tax authorities now want direct access to bank transactions.
We need to improve the tax or revenue collection in the country. The rate of tax on whitening of funds could have been higher. Moreover, the level of threshold was also required to be improved upon. The existing offer under VTFS does not discriminate between a filer and non-filer trader. Both the rate and the threshold proposed need to have been higher but the existing scheme was finalised because the Chief Minister of Punjab was adamant and the Prime Minister appears to be listening to him and concentrating only on central Punjab to get him the majority he needs to stay in power, both in Lahore and Islamabad, beyond 2018. Changes in the Benami law were indeed proposed. But law ministry fears that Islamic injunctions may knock them down. What constitutes "family" needs to be defined in the new law and blood relatives need to be lumped as one unit as in case of other tax laws, otherwise we could end up with five family members availing the scheme by breaking the turnover into units of five million rupees. The success of the scheme needs to give birth to creation of trust with a firm pledge that no more amnesty scheme would be launched and seizure would take place if this scheme is not availed by traders. It is easier to demand horizontal and vertical equity in taxation. However, one would need to be realistic and take into account limitations also. Financial inclusion is a laudable and desirable objective. The objective need not be volume of collection amount but enhanced documentation leading to substantially (double or triple) the number of existing tax filers. Having less than a million tax filers in a nation of nearly 200 million is not acceptable to anyone-at home or abroad. The success of the VTFS greatly depends on raising the number of filers and not on the amount received by the exchequer. Traders' percentage in growth is not commensurate with taxation. A lot of challenges such as smuggling and profound misuse of Afghan Transit Trade facility need to be overcome. Tax authorities would need to ascertain the expenditure of people if a higher collection is to be achieved. This is hard work but technology is indeed available - but someone needs to examine the data and checks and balances need to be in place. However, in a country like ours political patronage has a clear precedence over everything else.

Copyright Business Recorder, 2016

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