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There are rumblings of discontent amongst pressure groups that have been subjected to the levy of a tax in recent weeks. The objective is to compel the government to withdraw the taxes that were recently slapped on certain sectors in an ongoing effort to raise revenue collections or, at worst, defer the tax till next year when a more concerted action by the pressure groups may be mounted.
This has become the norm and the usual arguments are as follows: the sector/sub sector is already paying a tax (the fact that people around the world as well as in Pakistan pay more than one tax is conveniently ignored); the sector is constitutionally exempt from the payment of income tax, as is the case with farm income that ranges from the meagre pickings of a subsistence farmer to a middle income farmer to the very wealthy landlords who form the majority of our elected national and provincial parliamentarians; and the high illiteracy rates must be a deterrent to any attempt to bring the large parallel illegal economy into the tax net.
The Pakistan Cotton Ginners Association has announced its decision to stop purchasing phutti from 17 January in protest against the levy of 3.5 percent withholding tax on the purchase of the product from the middlemen. According to the Association, the Federal Board of Revenue (FBR) imposed the tax effective the first day of the calendar year through a notification issued on the last day of last year.
However, the Association members did not receive the letter till the middle of January. The stance of the Association is valid and one would hope that the FBR would support an obvious solution: applicability of the tax should be from January 15 instead of the first. Additionally, the Association argued that it had no means of distinguishing between the produce supplied by the growers, which would be exempt from withholding tax, and the middlemen, which would not.
In this instance, one would be unable to support the Ginners Association on the grounds that the paperwork available with the ginners would easily assist them in determining who they bought the phutti from. The Association made two further points in defence of their insistence that the government withdraw withholding tax on purchase of phutti from the middlemen.
First, that the middlemen provide a critical service to both the growers and the ginners. True, but the critical service does include profit or else the middleman would not be in business and it is the profit that must be taxed. And second a usual point raised by many a sector resisting the imposition of a tax: that the Association members pay a considerable amount of tax in any case, 571.5 million rupees as turnover tax. This argument too is not valid as there are a range of taxes that are paid by businesses.
The Pakistan Sugar Mills Association (PSMA) has also begun a campaign to exempt sugarcane purchase from the provision of Income Tax Ordinance Section 21 (1) because most of the cane growers are illiterate. While one cannot in all honesty challenge this basic premise yet there is a need for PSMA to begin to make payment to growers within the legal banking system which can be verified by the bank statements of the respective payer and payee. Increased documentation would enable the government to be fully cognisant of how much was bought and at what rate.
Reluctance to pay taxes is not unique to this country. The success of the pressure groups to convince the government to withdraw taxes is. However, Business Recorder has consistently maintained that the reluctance to pay taxes in this country stems from the general perception that their tax money is not put to good use, a substantial portion of it is frittered away by corrupt bureaucracy and ministries, and lack of transparency in governance.
In addition, the taxpayers are not enamoured of government profligacy, reflected by the appointment of nearly 100 federal ministers, with each one costing the exchequer substantial annual outlay, and its failure to provide infrastructure - physical or social. The truth of this assertion is evident from the fact that donations to charity in this country are very high, while so is tax evasion.
Until and unless the government seeks to neutralise its own negative image by taking proactive measures designed to end profligacy as well as eliminate corruption, any attempt to raise taxes would be similarly resisted. The tax system of this country has also come under repeated criticism with analysts alleging that it is inequitable (where a rich farmer is exempt from payment of income tax, while a much lower income earner in the public/private sector is not), and anomalous. Massive reforms are critical to ensuring that the people of this country have confidence in their government and pay taxes as levied.

Copyright Business Recorder, 2011

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