FBR’s Tax Directory 2018 Analysis — IIStartling facts & fallacies

The province- and region-wise collection is in percentage without mentioning from which sum these percentages have been worked out. The percentages are as under:

Punjab 35%, Sindh 45%, Balochistan 2%, Khyber Pakhtunkhwa 4%, Capital territory 15%, Gilgit Baltistan 0.1%.

Applying total collection on these percentages shows that many banks, public sector companies/organizations, telecoms, oil and gas and many others entities engaged in trans-provincial business activities and without mentioning their head offices and income earned in each province, this data presents a distorted picture. For example, capital territory received only 5% of total returns but its share is 15% in total direct tax collection, clearly establishing that majority of oil and gas companies filed their returns in Islamabad though doing main business and earning income outside the Capital Territory. For example, Fauji Group paid Rs 5 billion, OGDCL Rs 17 billion, Telenor Group Companies Rs one billion, Attock Petroleum Limited Rs 2.5 billion, Bestway Cement and Holdings both Rs 4 billion cumulatively, BowEnergy Resources (Pakistan) SRL Rs 3.4 billion, China Communications Construction Company Limited Rs 2 billion, China State Construction Engineering Corporation Limited Rs 7 billion, China-East Resources Import And Export Corporation Rs one billion, Cmpak Limited Rs 2 billion, Deodar (Pvt.) Limited Rs 2 billion, Government Holdings (Private) Limited Rs 12 billion, Huawei Technologies Pakistan (Private) Limited Rs 2 billion, just to mention a few. State-owned corporations in Islamabad are also contributing, which is like the federal government paying income tax because even if they are in losses, they are subjected to minimum tax on their turnover.

It is also worthwhile to mention that many companies having factories in Faisalabad (listed on Stock Exchange) are filing their returns in Karachi and therefore, share of Sindh at 45% does not reflect the true picture. The four leading banks i.e. National Bank [tax paid Rs. 5 billion], Habib Bank Ltd [tax paid Rs. 7 billion], United Bank Ltd [tax paid Rs 12 billion], Bank Alfalah [tax paid Rs. 3.5 billion]—total comes to 24 billion—but their main earning is from deposits raised from residents of Punjab (with more branches than anywhere else) and other provinces. If these earnings are excluded and proper adjustments are made only then can one understand why Sindh is contributing 45% with returns comprising 27% (779,771) and Punjab with 59% (1,696,533) filers is contributing 35% in taxes.

Punjab with 59% return filers confirms that main consumption and business activities are in the most populous province. Therefore, taxes collected at ports of Karachi (50% of total tax collection is at import stage) are not attributable to Sindh or Karachi alone but also to importers based in the rest of the country. This is evident from the fact that the point of collection and the point of claiming tax withheld are two different things. It is evident from the fact that Sindh has only 27% of total return filers.

The above fundamental and basic facts cannot be denied. The purpose of this article is not to create any parochial thinking or biases on the basis of province or city. However, those claiming that Karachi alone is feeding Pakistan should only look at these basic figures and stop making unfounded claims and prejudices and politicking that is not desirable within a federation. We should rather strive to end uneven development in the entire country uplifting the far flung backward areas and less privileged citizens, wherever residing.

The most disquieting aspect of the Analysis is massive evasion of tax by the rich people or exemptions granted to the privileged classes. Among the individual filers only 0.8% showed taxable income exceeding Rs 6 million. Majority of the rich people live in bigger metropolis like Karachi, Hyderabad, Lahore, Faisalabad, Sialkot or Islamabad or have houses there as in the case of absentee landowners, but their contribution to overall tax collection is woefully low. This should be a matter of debate rather than proving that Karachi alone in terms of tax collection sustains Pakistan. Had it been true, it should have reflected in the data shown at serial 5 and 6 of the Analysis as well as at serial number 7. The table/serial 5 relates to individual filers out of which salaried persons are not mentioned. Table/serial 6 consists of 64336 AOPs while making negligible contribution in 3 higher slabs which is only 5% whereas overall its share in total collection is 9%. Table/serial 7 of the Analysis is more important because it is admitted that corporate sector paid 56% of total tax collection.

Out of 44,609 companies, 8% paid tax on amount exceeding Rs 7 million. The number of companies that declared income not exceeding Rs 500,000 is 71%. It means major tax came from banking, oil and gas, and public sector organizations. It is worth noting that companies showing income exceeding Rs 5 million and up to Rs 7 million are only 1.2%. When data is minutely analyzed, it exposes the efficacy of FBR that not only failed to force all the companies to file returns but also could not conduct audit of 31,561 companies (71% showing income less than Rs 500,000) to check veracity of their accounts. If they cannot audit 31,561 companies, then what is the justification of having about 15,000 employees incurring huge cost to the national exchequer?

Data at Sr. No 8 of major cities have not been mentioned as to which province, tehsil or division these belong to. It is found that some cities, e.g. Abbaspur, are not located in any province but Azad Jammu & Kashmir which has its own constitution and tax machinery. This shows the callousness of preparing data of the 494 major cities contributing Rs. 1,026,156,746,886.

Coming to major markets mentioned at Sr. 9 [with 413,859 filers and Rs. 210,067,230,940 direct tax contribution], interestingly Raiwind Bazaar is shown as part of Lahore and paying Rs. 4.2 billion. If it is an independent city then it should also appear as a major city at serial number 8, which is not the case, thus, how its contribution is taken out of Lahore, undermining its total share. In Karachi as well Malir has been shown not part of the city. In the same manner, many districts of Lahore have not been shown in collection of Lahore but appearing in serial number 8 separately. Districts of Karachi have been shown at one place but those of Lahore are scattered all over resulting into mismatch for comparison purpose. It should have been on Division-to-Division basis at one place. WAPDA Town Lahore alone paid Rs. 1.6 billion (with 10967 filers) as compared to Zamzama Street Karachi at Rs. 197 million (with 288 filers). It appears strange because WAPDA Town Lahore has fewer markets and quantum of business as compared to Zamzama Street Karachi contributing 197 million (with 288 filers) or Zaibunnissa Street Karachi where tax paid is only Rs. 22 million (with 102 filers).

These facts are just a few glaring mistakes, omissions, discrepancies, deficiencies and distortions in the Analysis. It is hoped that FBR will consider the above points and after removing, all shortcomings will issue a revised version of the Analysis to keep the record and data factually correct and reliable.

(Concluded)

(The writers, lawyers and partners of Huzaima, Ikram & Ijaz. Huzaima and Ikram are adjunct faculty of Lahore University of Management Sciences (LUMS) and Syed Muhammad Ijaz is that of Beaconhouse National University (BNU). The views expressed in this two-part series of article are not necessarily those of the newspaper)

Copyright Business Recorder, 2020