Collection of taxes had always been the most vital source in almost every society in human history, and taxation system has become life-blood for socio-economic development in a modern nation state. A good tax system helps establish a just society through equitable distribution of economic benefits for social justice.
Such a system must be business friendly to attract and encourage investment at all levels of business activities. But if a tax system remains regressive and inelastic it discourages properly documented investment with all its social implications compelling the country relying heavily on other sources including foreign assistance with wholly alien and irrelevant recipes.
Too much taxation with high tax rates and complicated system of various taxes in Pakistan have been perhaps the single most important root cause of black economy and tax evasion, non-documentation and corruption. Powerful informal sector of black economy remains boosted by very lucrative and unchecked wild forces of organised smuggling, black- marketing, gun-running and drug trafficking through major parts of our country to the advantages of pressure groups helped by unchallenged dark forces of mafias and vested interests.
They are further promoted and protected by politico-bureaucratic amalgam through erosion of institutional stability and hollow cosmetic measures. Unfortunately this state of affairs is not only allowed to continue but it is being strengthened by defeating specialisation and professionalism in favour of generalisation to accommodate manipulating groups and blue eyed individuals.
It is a proven fact of history that all taxes in any shape are unwelcome, but Income Tax is the most unpleasant of all taxes, and it remains so in whatever from it is introduced any where in any society. Fundamental reason for its unacceptability is that it does not provide any direct return or benefit to the taxpayer. That explains why Zakat even at very low flat rate of 2.5% was refused even at a very early and dedicated religious stage of Islamic history (during the period of first Caliph).
During my 30 years of experience of income tax service, I worked at almost every important field and desk post. I wrote a paper on Tax Reforms Package a few years back. The proposals made in this paper were generally welcomed by all the stakeholders.
However, FBR gave practical shape to some of the proposals over a period of many years and that too in a piecemeal manner. My long experience in the tax department has led me to the unambiguous conclusion that a tax system can only be successful if it has:
--- Clarity of law and communicable simplicity of procedure.
--- Stability in institution building and continuity of policies (for promoting tax culture in accordance with the stage of development of a society).
--- Specialised and professional top management equipped with practical field experience of taxation.
--- Enforcement of law in letter and spirit.
--- Provisions of incentives to the taxpayers with some direct social and material advantages.
Simplicity of law and procedure will not succeed unless rates and number of taxes are reduced to a reasonable level. A few years back more than hundred different taxes were in operation in our country out of which frequently charged 77 taxes included 20 federal taxes, 19 provincial taxes, 14 local taxes and 24 other levies and surcharges. The businessmen were completely at the mercy of various government departments. The rates of taxation were also unreasonably high since it was an easy way to increase revenues by increasing number of taxes and rates of tax.
SIMPLIFICATION OF TAX LAWS Legal provisions under the Income Tax Act 1922 were considered quite complex, particularly due to new requirements of taxpayers in the emerging business environment. This Act was replaced by Income Tax Ordinance, 1979 in which legal provisions and procedures were re-arranged in a much-simplified manner. It was welcomed by all the stakeholders. There was no strong demand to replace this law by new law. The only demand of the taxpayers then was that Universal Self Assessment Scheme be given legal cover instead of changing it every year through circulars. In my proposals on Tax Reforms (in 1998) I had also endorsed the view that USAS be made a part of income tax law.
But surprisingly and to the amazement of every stakeholder, a new law was got drafted not by local experts, but by a foreign expert - wholly alien to the local conditions - purely on the pattern of a developed economy. This law became operative as Income Tax Ordinance, 2001. Even senior field officers were not taken into confidence and entire exercise was done under the compulsions of the IMF and the World Bank. In the name of reforms every detail was prepared by the IMF through a "confidential" paper in which the designation, nomenclature, the design of offices and number of officers and employees were proposed by foreigners. The dominant role allowed to be excised by the World Bank and IMF made many field officers believe for quite some time that funds for reforms supplied by these institutions were grants and not loans. Not only road map prepared by IMF was followed literally, but the loan money has been squandered recklessly. Substantial amount was spent on imported furniture and one DG of an RTO told me that repair expenditure of air conditioners during first ten months was over one million rupees.
After the promulgation of Income Tax Ordinance 2001, more than four hundred amendments had to be made in it during the first month alone. Over two thousand amendments have so far been made in Income Tax Ordinance, 2001 as it was out of tune with local requirements. It was unnecessary exercise of mere experimentation, which greatly eroded the institutional fabric of tax organisation and added confusion among its rank and file.
After the operation of Income Tax Ordinance, 2001 repeated concessions have been allowed to the taxpayers, some of which were not even demanded by them. Our system of income tax today is one of the most concession-orientated systems in the world. But compliance of tax laws has shown no improvement.
In comparison, India redrafted the Income Tax Act 1922 in 1961 and Income Tax laws have been enacted under Income Tax Act 1961 with effect from 13-09-1961. It has 298 Section with 14 Schedules and 5 Appendixes. In this Act amendments have been made through 109 Finance Acts so far. These amendments have been smoothly made by adding additional sections and sub-sections without experimentation of drafting the new laws again and again. For instance, in Chapter-VI A dealing with some deductions, Section 80A has 67 additional sections (besides sub-sections) from section 80A to 80 VVA, and Section 115 has 75 additional sections from 115A to 115WL. Indian Income Tax rules that revised in 1962 are still operative. We replaced Income Tax Act 1922 by Income Tax Ordinance 1979 which was repealed and replaced by Income Tax Ordinance 2001 drafted by a foreign expert based on the model of an advanced country.
Indian tax system had the closest affinity with our business and social environment since both countries inherited Income Tax Act 1922. But instead of sharing common experience with Indian tax laws we preferred aping a model of a distant advanced country having little relevance to our ground realities.
EROSION OF FBR We congratulate ourselves of being ahead of time - by stampeding every legal wisdom of the past. Over and above that an imported finance minister (later prime minister) had managed to thrust upon the FBR five members from private sector who had little working expertise of tax system. Huge amounts were spent on them as perks with hardly any positive achievement. All this was done in the name of reforms and introduction of fresh (but alien) experience into this specialised organisation. These members could hardly match the career tax officers having over 30 years of practical field experience. The officers and workforce remained disillusioned and no positive long-lasting result could be achieved. Major attention was focused on withholding tax which has been imposed on nearly every consumable item or receipt, and income tax got converted into an indirect tax which is suicidal for the very spirit of direct tax system. Even the achievement of overall budget has been artificial as major chunk of revenue came from Sales Tax, Customs Duties and withholding tax on constantly increasing imports both oil and raw material including machinery parts etc. So when these sources fell, the budget target also fell significantly. As if this (deterioration) was not enough, the Federal Government appointed a generalist as chairman FBR last year (who was junior to 38 officers of FBR). This was done at the most crucial time, when collection of budget was most needed during the last months of financial year and government could ill afford such an adventure. When the career members protested at this appointment, they were sidelined or made OSDs. Again this year also, just four months before the end of the financial year, the previous head of FBR has been replaced by new generalist officer (to work miracle). The appointment of a generalist as head of a technical and professional organisation is reflection of utter disregard to the national interest in this age of specialisation and at this critical time.
Such an attitude appears to be a deliberate attempt to erode national institutions, which is a classic example of bad governance. The undeniable fact is that FBR has been failing in raising its tax-to-GDP ratio due to (a) excessive experiments and resultant erosion of institutions; and (b) little importance given to career officers and tax experts in policymaking and top postings.
PRESENT STATE OF AFFAIRS AND ITS ANALYSIS
(1) The budget target of the FBR was fixed at Rs 1,630 billion, which was revised and re-fixed at Rs 1,588 billion. With two months left, FBR's total collection up to April 2011 was Rs 1,147 billion, leaving balance to be collected at Rs 441 billion. Collection of such huge amount does not appear to be possible. The policymakers not only banked heavily on foreign borrowings but had no definite plan for economy despite energy crisis, slash in PSDP twice and substantial payments of interest on foreign debt amounting to Rs 1,300 billion, which has eaten up economy together with war on terror.
The quality of economic analysis and research of our financial experts can be found in Economic Survey 2009-10. No analysis of revenues is available in this important document. Sketchy and superficial comments are given about various sectors of economy with some irrelevant and defective charts pasted at the end. The figures and narration spread over various pages lack any descriptive scrutiny leading to no direction. As a whole the Survey appears to have been prepared under the supervision of baboos without application of mind. Such is the priority of the government for good governance. So, one should not be surprised if the revenue system today is in such a mess.
(2) As pointed out earlier, our income tax system today is one of the most concession-oriented systems in the world but despite that tax base has not expanded adequately and black economy still dominates the economic activity, with tax-to-GDP ratio going down. In my Tax Reforms Package presented in 1998, I had argued that taxpayers must have guarantee of stability of tax rates and procedure of the system. Legal guarantee of Universal Self Assessment has since been provided through statutory provisions in the Income Tax ordinance-2001. Every return of income filed by a taxpayer is to be accepted u/s 120 irrespective of declared figure of income or loss. The rates of income tax were also reduced as proposed in my Reforms Package with some variation. I had proposed that minimum rate should be half percent and maximum 20 percent for every taxpayer including the corporate sector. This would have reduced evasion, malpractices and corruption, resulting in expansion of tax base. But the government fixed rate of 35% on corporate sector whereas on salary income maximum rate was reduced to 20%. Now the FBR again failed to appreciate the role of continuity and credibility of tax laws. Having failed to broaden the tax base, rates of the tax have been increased on all classes of income with complicated calculation instead of simple method.
(3) The government on advice of non-technical consultants and advisors has constantly been introducing whitening schemes, despite the fact that foreign remittances through banking channels were a constant source of whitening the untaxed money. The latest adventure by the government was that only two percent tax was to be paid through a whitening scheme for whitening any amount of assets or black money, but the response was paltry payment of Rs 3.2 billion income tax for whitening assets just 1.23% of the total size of economy. This sorry state of affairs in the presence of every concession allowed by the government is most unfortunate and speaks loudly of the apathy of the policymakers. This also shows that government does not want FBR as an independent stable institution to be run by experts and experienced tax officers. Just as a simple MBBS doctor cannot be the head of an organisation of medical specialists and a half-educated man cannot guide the scholars, so a generalist in no way is a better substitute for an experienced professional. Obviously the first priority of the Government must be that highly experienced career officers of tax service be posted at all top management levels of FBR and there should be no room for any mediocrity.
(4) Back in 1998 the number of taxpayers was shown 961,090. These taxpayers included salaried persons (411,000) and business cases (other than corporate cases) who filed returns were 534,000. After 11 years, the position as on 30-06-2009 and 30-06-2010 was as under:
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S. No Total Number of Tax Payers Year Ending 30.06.09 Year Ending 30.06.10
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1 Number of companies 18973 19755
2 AOP Cases 28779 31135
3 Salaried Cases 145019 196101
4 Non corporate business 549252 638633
5 Number of return filers 765461 1444389
6 No of persons shown in
statements, certificates of
salaries, imports and exports, etc. 1766998 2313606
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The above figures clearly reflect upon dismal performance on the part of policymakers. The documented sector (or corporate sector) is very small which mainly bears the brunt of tax collection. Top one hundred taxpayers paid Rs 174 billion in tax year 2010 beside deduction at source and advance tax (mostly paid by petroleum, banking and manufacturing sectors). Other than the active registered companies and salaried class, the number of business taxpayers is quite low.
Their share in the income tax collection is less than 10% of the gross collection whereas share of salaried person is 7%. After deducting the collection of tax paid by corporate sector at Rs 176 billion plus gross withholding tax (with CVT collection), balance amount works out at Rs 15 billion only which is around 3% of total tax collection. It is argued that business community pays withholding tax on almost each item, but the same is true of the whole population including the large majority of poor people (including 10 million mobile phone customers).
Common man pays withholding tax on mobile phones and some other items (including CVT) which was almost 54% of the gross income tax collection in tax year 2009. It may also be added that besides major collected through withholding tax, corporate sector, government corporations, banks and some multinational companies including oil companies, have been paying bulk of tax revenue.
Almost the same number of companies (one hundred) paid over 80% of indirect taxes, ie Sales Tax, federal excise and customs duty. Obviously the number of regular business taxpayers who filed returns of income could not increase.
(5) Overall collection of FBR as on 30-06-09 and 30-06-10 shows an unpromising situation as detailed below:
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Taxes Year Ending 30.06.09 Year Ending 30.06.10
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Sales Tax (total) 478284m 516348m
Sale Tax on imports 203323m 247246m
Sale Tax on domestic 274961m 269102m
Federal Excise (total) 113715m 124784m
FED on imports 14617m 13557m
FED on domestic 99098m 111227m
Customs (Net) 155905m 160273m
Income Tax (Net)
(Including withholding tax + CVT) 480487m 525977m
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The above figures indicate that amount of withholding income tax, Sales Tax on imports and federal excise on imports and customs duties works to 51% and 63% in both years, respectively. Major source of even domestic Sales Tax and Federal Excise comprises of: consumption of sugar and products of edible and medicine, etc.
-- utility bills and ED on bank transaction,
-- purchases by Government and semi Government organisations, corporations and various contracts. Add to it the withholding tax on almost every item and it would be clear that burden of 70% of all taxes is being borne by common man through indirect imposition of taxes.
It is a matter of great concern that the situation is deteriorating. The tax to GDP rate has gone down to 8.8%. The number of income tax business returns received during the last two years was quite unsatisfactory.
As regards Sales Tax, the situation is worse. The number of enrolled Sales Taxpayers is merely 102167 and only 90204 returns are now regularly being filed. During financial year ending 30.06.2010, only one hundred corporate taxpayers paid 81% Sales Tax (Rs 240 billion) out of gross collection of Rs 295 billion Domestic Sales Tax. Major amount of Domestic Federal Excise was also paid by only 24 corporate taxpayers (mostly petroleum companies).
WHAT THEN IS TO BE DONE? Our past experience of over three decades leads us to unequivocal conclusion that frequent experimentation and outside (non-professional) interference have caused erosion of FBR as a stable tax collecting institution with inevitable consequences of confusion and uncertainly among the stakeholders, particularly among the rank and file of all the three departments of the FBR, despite doubling the salary package and provision of better of facilities than before.
Central Board of Revenue was re-designated as Federal Board of Revenue through an Act of Parliament with effect from first of November 2007 as a semi autonomous body after years of deliberations and efforts. The Cabinet Committee for Federal Revenue headed by Minister of Finance was created as a Supervising body of FBR. Whatever guidelines were laid down for institutional stability of FBR needed to be kept intact and followed in letter and spirit. But the newly established system appears to have been severely damaged due to mindless experimentation and appointment of non-professional individuals at the helm of affairs. The FBR appears to be a strange hotchpotch organisation lacking direction and without proper co-ordination among various tiers of its departments. There is a confusion and dissatisfaction all around. Proper job classification is absent with no method for right person for the right job.
If Government is really serious in tackling the issues of revenue, it must give due importance to the FBR as the most important earning hand of the country as an institution, instead of accommodating the vested interest and blue-eyed non-professionals. Right people for the right job must be a permanent feature with well-defined career-oriented expertise in the organisational hierarchy. The officers with general experience, who develop the habit of tasting every department, are nothing more than jack of few traders, but master of none, and there should be no scope for them to taste a highly technical organisation like FBR. In areas like Reforms and Restructuring, the task must be left to the experienced and senior officers of the FBR, who after frequent consultation with field formations can re-visit every aspect of structural anomalies according to the actual requirements and ground realities. It must be emphasised that FBR needs to be strengthened as a stable nerve centre based on professional competence.
Following measures therefore need to be adopted in letter and sprit both for immediate and long term stability and efficiency of the taxation system, which would also help expand the tax base and increase in revenue:
A- (1) The government lacks political will, having little consideration for good governance. FBR is traditionally plagued with political pressure and bureaucratic (vested interest) influence. The first step in the right direction would be selection of Chairman FBR on merit. For this purpose, the post of Chairman should be advertised for selection through Public Service Commission for a fixed tenure of four years based on academic qualification and professional experience. Such a step would go a long way in stability and efficiency of the FBR with no apprehension of political influence or insecurity of service.
(2) Job classification with career planning must be clearly defined with strict application at all levels for postings and transfers. FBR as the nerve centre of revenue organisation must have highly experienced officers and efficient staff who may be due for next promotion. Job performance of various sections of FBR needs to be revamped for better co-ordination and only those officers should be posted in FBR who have sufficient field experience turn by turn for a fixed period.
(3) A full-fledged research and development wing be established to guide the FBR in the tax policy matters and suggest practical ways for effective co-ordination between FBR and field formations in the light of ever emerging new situations.
(4) System of appraisement of Customs Duty and PaCCS and system of Sales Tax processing and STARR should not be closed but revisited and upgraded for application in all the dry ports and seaports to make them transparent and less time consuming. Only fully trained honest and senior officers should be empowered to appraise and assess tax liabilities in accordance with best practices and principles.
(5) Smuggling is perhaps most lucrative and organised business in Pakistan and smuggled goods are sold openly everywhere particularly due to misuse of ATT. Many departments including FIA (Immigration), Commerce Ministry, Foreign Office and EAD (for vetting agreements) deal in anti-smuggling cases. Other agencies like Coast Guards, Frontier Constabulary, Levies and even Police Department have been given anti-smuggling powers. It not only creates over-lapping and delay in taking proper action but it has become a source of organised corruption which explains why smuggled goods are available not only in big cities but also in small towns. These agencies mostly run after tracing smuggled goods for corrupt practices and they do not focus on their own duties. Proper course for efficient system would be that one agency fully trained and equipped with relevant requirements at all places must be empowered in dealing with anti-smuggling in an effective and transparent manner.
(6) All exemptions from Sales Tax and Income Tax should be withdrawn. The Chief Commissioner should be empowered to allow exemption in genuine cases for a renewable specified period.
(7) At present, only one hundred taxpayers of corporate sector pay 90 percent of Sales Tax on imported and domestic items. This shows Sales Tax has a very narrow tax base mainly due to quite high rates. To make it acceptable in the business community Sales Tax or RGST should be considerably reduced to 5 percent starting from a fixed rate of 1 percent or Rs 100 on specified monthly sales (gradually increasing up to 5 percent, which should be adjustable). Sales tax at the rate of 1 percent should also be imposed on defence purchases as well as on all medicines, which should be non-adjustable. International tenders should also be taxed at one percent non-adjustable sales tax.
(8) Federal Excise should be merged with sales tax to reduce the number of taxes and hassle for the taxpayers. Sales Tax system should not only be fully automated and computerised to minimise delays and corruption but correspondingly strict system of audit should be put in place to eliminate the misuse of the system.
(9) Claim of refunds on account of input cost has been a major sources of fake claims, corruption and malpractices. This can be curbed by reducing sales tax rates and abolishing exemption. Instead alternate incentives can be offered to the exporters including exemption of Income Tax and other taxes/levies on the exported goods.
B - (1) Measures to be adopted to increase the Tax Base and Revenues: As indicated earlier, more than 80 percent Income Tax was paid by around 100 major taxpayers of the corporate sector during the year ending 30-06-2010. Credible data is not available with FBR to show the number of taxpayers who paid tax of Rs 100,000 (or more) or one million (or more). With number of return filers at 1444389 (as shown by FBR recently) the Income Tax base (like Sales Tax base) is quite limited. For expanding the tax base some provisions of law need to be amended/added to ensure that:
a) All property transactions involving plots of 2 kanals and above in the urban areas of big cities should be registered only after verification of NTN of seller and purchaser;
b) Similar method should be adopted for sale and purchase of commercial property of any size in the big cities;
c) All types of vehicles with market value of one million rupees or above should be registered/transferred after verification of NTN or NOC from tax officer;
d) Every person travelling abroad, except the students and foreign nationals should be required to obtain NTN or NOC from Income Tax department. This should also include travel for Umrah, Hajj or Ziarat, medical treatment and personal visits;
e) Expenditure on lavish functions, including marriage and social/political gatherings and conferences should be taxed either at a fixed rate or booked for assessment of income after verification of NTN of the person concerned;
f) Services sector is highly under taxed, particularly the income of the surgeons, physicians (specialists), advocates and professionals rendering consultancy services. The surgeons earn an average of Rs 0.5 million to Rs 20 million per month. Specialist's income ranges from Rs 0.2 million to Rs 1.5 million per month, whereas their annual declared incomes are generally even less than their monthly incomes. There is mushroom growth of private hospitals, clinics and labs that charge exorbitant fee from patients attended by specialists and surgeons. Fees of private professional colleges and schools are also very high. Their share in revenue is very nominal but no meaningful audit has ever been conducted. A mechanism needs to be adopted to properly tap this very important under taxed source of revenue;
g) Majority of non-corporate taxpayers wants to make compliance in Urdu. For better compliance tax returns should be prepared in Urdu together with pamphlets for proper guidance of taxpayers. As Regional Commissioner of AJ&K, I had introduced return form in Urdu (with adequate publicity), and despite substantial damage to business due to unprecedented earthquake, compliance of taxpayers increase by more than 30%.
(2) Making the application of tax laws equitable:
a) The most frequently raised objection by the business community in particular and public in general is that politicians represent the people to safeguard their rights and are supposed to make law in public interest, but they violate the law themselves when it comes to payment of due tax liability. Statistics show that very few legislatures of National Assembly, Senate and Provincial Assemblies are on tax rolls; and those who have NTN - pay very meager amount compared to their expenses on political gathering, living standard, house hold expenses, personal foreign visits, medical treatments and expenditure on political campaign and publicity. It should there be made mandatory under the law for every person contesting election (at any level) to get NTN and file return of income and statement of expenditure. Any person found guilty of evasion of tax should stand disqualified. Such a step will give substantial boost to tax payment and expansion of tax base as leaders of the people will become a roll-model for enforcement of tax laws, dispelling the public perception that they consider themselves above the law.
b) The share of agriculture in GDP is 21% without contributing its share in the national revenues. Due to powerful traditional lobby of big landowners, agricultural income is exempt from income tax as it is a provincial subject under the Constitution. Tax exemption to such a large section of economy reflects a big distortion and tax laws appear inequitable, causing heart burning among the business community. Taxing agriculture income will make the taxation system not only equitable but it will greatly help expand the tax base and increase in revenues. Three steps should be taken in this direction to minimise the resistance:
i) Agriculture land up to 15 acres should be exempted from income tax.
ii) Rates of Income Tax should be reduced (even for other taxpayers) to make the tax acceptable and to reduce the tendency of evasion.
iii) Agriculturists can be compensated by provision of cheap fertilisers, electricity and irrigation water charges (about 70 % water is consumed in irrigation in 23.80 million hectares of cropland).
c) At present FBR has not devised a worthwhile effective procedure of Audit both for Income Tax and Sales Tax. There is no practical deterrence against evasion of tax after introduction of Universal Self Assessment Scheme. As pointed out earlier, USIS system of tax law is one of the most concession-oriented system in the world and it requires equal vigilance and deterrence to safeguard the interest of revenues and enforce proper compliance. There should be a transparent provision in law that every case shall be audited on its turn after every third or fourth year (unless caught earlier on account of some definite evasion.
d) Typically traditional bureaucratic method for raising revenues is to increase the rate of tax and number of taxes which is always counter productive as such a method encourages theft (evasion) and makes the tax base shrink or stagnant. Not only minimum rate should start from the lowest slab but maximum rate of Income Tax should not be more than 20%, as no one would be willingly paying tax more than that, if one finds any possible foul or fair way. Higher rates also discourage documentation and expansion of tax base, and consequently black economy is strengthened. Instead of promoting short-term interests, the FBR must bring the tax rates to a reasonably acceptable level so that measures adopted for increasing the number of taxpayers and revenues become fruitful. Lower rates of tax can be a better tool of persuasion for taxing agriculture income. Moreover, another very important advantage of lower tax rates would be that it can help in introducing Sales Tax even at retail level (as mentioned earlier). The traders dislike documentation due to fear of Income Tax. If they can declare maximum receipts and incomes (due to low tax rates), the resistance to the imposition of Sales Tax would be minimised.
(3) Imposition of Wealth Tax in a new form and the will of the government
(a) Wealth Tax was abolished in 2000 under the pressure of powerful lobby mostly comprising of civil and military bureaucracy who did not want to pay Wealth Tax on their properties and plots, although its rates were quite low. Tax on wealth is an important instrument of a fiscal policy, which endeavours to establish equitable economic justice. Due to rising trend of investment in non-productive sector like properties, it would be advisable to impose Wealth Tax on all immovable properties at a fixed rate to be paid at the time of purchase/transfer. Wealth Tax on each property measuring 2 Kanals and above should also be charged annually. Other assets including costly vehicles can also be taxed accordingly.
(b) All the measures require the will of the Government to enforce law in letter and spirit. Successive governments have been bullied by apprehension of traders' strikes, and they have wrongly considered them their decisive political constituency. A few hundred thousands traders mostly in big cities can never change the fate of a government or political party if it remains more sensitive to the well being of the large population of 180 million people. Moreover, the ruling elite itself sometimes is the greatest hurdle in the enforcement of law. A collector sent his officials to monitor sales of one of the restaurants in Lahore, which incidentally belonged to the Minister of State for Finance. The Collector was immediately made OSD and the campaign resulted in a fiasco. The political leaders in general and party in power in particular consider themselves above the law. Such a mindset would never enable us to stand on our own feet.
C - Special incentives for the Taxpayers:
The taxpayers frequently complain that they derive no direct benefit from payment of any amount of tax. Our present system has not envisaged any provision of incentives of even social or psychological nature for the taxpayers. To promote tax culture, the Government must provide some special incentives for them. For instance certain limit of payment of tax (say Rs 200000) can be fixed for an individual taxpayer for one year, and if a taxpayer pays tax (of that amount or above), then he should be allowed some privileges for that year. For instance:
i) Power to attest certain documents that year;
ii) Recommendation to issue specified number of armed licenses in that year;
iii) Recommendation to issue National Identity Cards and Domicile Certificates etc;
iv) Status of Honorary Magistrate and power to check and challan the traffic violators for one year by fixing a threshold of tax payment for this purpose. This will ensure additional advantage of effective control to regulate otherwise quite unwieldy traffic throughout the country;
v) Priority in obtaining telephone, electricity, Sui gas connections;
vi) VIP treatment in hospitals and in courts of law;
vii) Some social security system should be introduced for regular taxpayers and in case of old age or disability, they should be paid some percentage of amount out of the tax already paid by them over the years;
viii) Highest taxpayers should be offered honorary seats in legislation and government corporations. They should be guest of honour in certain local, provincial or national ceremonies/functions. (The writer is a former Director General (Tax Audit) FBR)
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