The Federal Board of Revenue (FBR) has suggested levying income tax surcharge on the 2.7 million existing income tax payers of the country to generate additional funds for flood victims while there is no proposal which specifically targets the rich and the influential. Sources told Business Recorder here on Thursday that the FBR has submitted different proposals to generate additional revenue for flood affectees.
The proposals include imposition of 'Disaster Import Duty' on non-essential or luxury items, which are already subjected to regulatory duty as well as additional customs duty. This proposal would only increase the prices of the items consumed by the over-burdened lower middle and middle income groups. The second proposal is to levy income tax surcharge on the deducted tax from the income earned by business community as well as salaried class. The surcharge would also be applicable on withholding tax deducted on power consumption by the industrial and commercial consumers. This proposal would directly hit the salaried class, which is already contributing a handsome amount to the national exchequer.
US Secretary of State Hillary Clinton has again urged Pakistan to ensure that wealthy Pakistanis contribute to helping the country overcome the devastation caused by floods. She urged the Pakistan government to "take immediate and substantial action to mobilise its own resources".
However, Pakistan's tax officials have not worked out any specific proposal for imposing any kind of tax or surcharge directly on the elite class. All proposals to generate additional revenue for flood affectees relate to imposition of surcharge on income earned by the salaried class. Recent changes in Income Tax Ordinance 2001 empower the FBR to complete provisional assessment of cases where non-filers of income tax returns have failed to respond to notices of the department. So far, the new scheme of provisional assessment has failed to bring rich people into the tax net.
Sources say that the proposal to impose flood tax on properties and agricultural land owned by the rich has not been floated by the FBR. The Board has no legal authority to impose tax on property as it is a provincial subject. Therefore, the imposition of surcharge has been restricted to salaried class and income earned by business and trade. The FBR proposals related to flood showed that not a single proposal has been drafted to directly impose any kind of surcharge on rich people.
It is learnt that one provincial government had proposed to the Ministry of Finance to restore wealth tax for generating additional revenue for the flood victims. The FBR has not opposed the proposal, but submitted current status on the wealth tax to the Finance Ministry. During the last session of National Assembly, Minister of State for Finance and Revenue Hina Rabbani Khar said if the Parliament desires it could revive wealth tax abolished by Musharraf regime in 2000 to bring majority of property into the tax net. The government is ready to revive wealth tax, provided the Parliament supports buying and selling of moveable and immovable property into the tax net, she added.
She said that the tax base is expanding for the last couple of years and the number of tax returns had increased from 1 million in 2007 to 1.7 million in 2009. "The tax figures available with me show about 70 percent increase in the tax base from 2007 to 2009".
The Minister also dismissed the perception that salaried class has been the highest tax contributor and said that figures of last two years show a steady decline in contribution of salaried class mainly because of increase in the benchmark of taxable income.
During preparation of proposals for generating more revenue for the flood victims, the FBR never suggested to the Finance Ministry to restore the wealth tax. The restoration of wealth tax would directly collect substantial amount of revenue from the elite class having plots and agricultural land. Similarly, the FBR has also not submitted any proposal to directly generate any kind of revenue from the rich.
The FBR had withdrawn arrest orders against chronic defaulters, fearing that they would go into litigation and the Board would be unable to realise much revenue. In another exercise, the Board had begun arresting those who defaulted by Rs 1 million or above. This was suspended as it was deemed inappropriate to take such extreme measures against defaulters. The FBR issued instructions to field formations to temporarily avoid harsh measures against defaulters till further orders.
Tax authorities argued that it is not the policy of the FBR to arrest defaulters, but to ensure recovery through attachment of bank accounts and other enforcement provisions available in the tax laws. The arrest of defaulter is not an easy task in the presence of current system of assessment, appeals and other provisions under the Universal Self Assessment Scheme (USAS).
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