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Tax is a charge on persons, entities or property by an authority in the relevant scenario. Purpose is to raise funds from its subjects. The term 'tax' embraces levies by an authority, normally government, in relation to property, privileges, occupations and enjoyments of the people. The term is believed to include all sorts of pecuniary charges and levies. Thus tax is a payment exacted on persons and corporate bodies to finance ends of government. It is, however, not necessary that a levy should be in monetary terms. Tax can also be attributed as burden on a person, group of persons or economic entities to the end of assisting operations of the government. At times, tax levy may be to discourage consumption of goods or services by increasing their cost to the user. Postulate, in this connection, is that with increase in user's cost relevant consumption shall decrease.
Most governmental activities are financed by taxation. Primary purpose of taxation is to raise revenue to meet public spending. However, taxation policy may have non-revenue objectives also. In the modern world, taxation is used as an instrument of economic policy. It affects volume of production, consumption, investment, choice of industrial location and techniques, balance of payments, distribution of income, etc., at times choosing friends in international trade.
Tax includes all levies, general, local or special and all monies raised through taxation. It is not a payment against services rendered. An individual is entitled to charge royalty, not tax, which can be done by a public authority for public purposes. It is a burden which individuals are compelled to bear in proportion to the protection received or the quantum of property. 'Power to tax' is an incident of sovereignty, coexisting with that of which it is incident. Taxes are no debts. These are not assessments. These are burden and imposition. It is exaction by an authority. 'Tax' used as a verb means to assess, fix, adjust or determine.
Sales tax whether on goods or services also aims funneling revenues to governments. Sorts of guidelines for taxation: equity, social uplift, economic development, growth of trade, industry promotion and the like are winked at by the sales tax laws. Over the years, attempts have not been made to call maturity to sales tax laws, to draw these under the umbrella of social conditions obtaining.
The Sales Tax Act, 1990 provides for levy of tax on goods sold. Notwithstanding, the law hints at situations in which tax may be charged on other basis. Four provincial sales tax legislations providing for tax on services in Punjab, Sindh, KPK and Balochistan are also in the field.
The Pakistan General Sales Tax Act, 1948, a federal legislation, imposed a standard tax rate of six pies per rupee, applicable at every stage of sale. Dealers with annual turnover up to Rs 5,000 were not burdened. Rs 5,000 per annum in 1948 constituted a sum in which a comfortable modest middle class family living was. The man was absolved of the drudgery of filing sales tax returns, freed to have his pursuits. Tax filing system was simple, not requiring to hire a consultant to fill the tax return etc. Convenience, simplicity, elasticity, doing away with avoidable hardships were hallmarks. Not needing many visits to the government offices for explanation in the face of a communication from tax office, were virtues of the system. If these are taken for a virtue worth emulation, not difficult is giving a judgment on our thorny landing, moving towards mid 21st century.
Disturbing is that our tax system is complex. Tax laws are coached in intricate language, which a person, not fully entrenched in accounting and law, cannot fathom. Of course, English language is a major problem for almost everybody around. Then there is a plethora of SROs, tricky departmental instructions and varying interpretations of what is in the logbooks. One in the clutch of a sales tax issue has to hire an expensive consultant. May be FBR does not intend that. However, fact remains that on receipt of a communication from FBR, one has to give a Mayday Call.
What a taxpayer would need is that the system should not require his being held hostage by tax consultants and the tax office. To that end the laws should be simple, not necessarily needing to hire outsiders in the event FBR has a query. A public finance reminiscent would hold that recovery rate may be better when a tax is intelligible to the one required to pay. Non-understanding or non-familiarity breeds aversion.
The command is in a language, the man directed to pay is not likely to understand. He has to hire a consultant to fathom what is expected of him and to ward-off against repercussions phraseology of the rules and regulations which may get him into. Coached in playful English with syntax which even men well versed in the language find foreign, beyond comprehension, our sales tax laws, both federal and provincial, appear oblivious to costs of compliances to the exchequer as also to the subjects. Nature of formalities the taxpayers are required to undergo to comply with the laws, one finds arduous. What a paradox?
Needed is a simple system, coached in a language man in the street may bear with. If this boils down to different sets of laws or expressions, one in Urdu, to drive the law home, the same should be done. One may be reminded that an uncouth lady commands little attention.
Experience of this scribe is that floor executives of the tax departments are often found wanting to find dimensions of a sales tax law provision because of the same having been coached in a language they have not been able at home with. Accordingly, it is argued that sales tax laws need to be coached in Urdu. There may be substantial improvement in the present bickering if FBR delivered Urdu version of their requirements are to hand.
An important feature in tax administration should be tax collector's view of cost of tax collection. Not rarely collectors cause incurrence of huge collection cost - winking at relevant recovery size and agony of the taxpayer.
It is believed that there is no juxtaposing of cost with revenues on the part of tax collectors, which should be there, at least, with reference to the categories or economic might of would be affected taxpayers. As a matter of principle, the state machinery should not apply same force to twist arms of the privileged and less privileged. To forestall uncalled for recovery cost, at times exceeding yield when it turns a court case, steps need to be taken before hand.
The government is often uneasy due to huge stalled sales tax claims caused by the law dictums. Uneasiness of assesses subsists in the wake of contentions that the tax demands against them are frivolous, with ulterior motives. Queer to watch is that both sides, tax collector and taxpayer, accuse each other of not understanding the laws, flouting the laws. Sales Tax laws heavily rely on law and accounting with fine tuning of laws in relation therewith. Rival parties drive strength from identical law phraseology - often divorced from scenes of happenings. Were it not so huge, tax claims would not have been hanging fire. Their volume would have been lesser.
The state claims to be worst sufferer with the state of affairs. Irony of the fate is that basically it is they responsible for this. It is they who have opted for the quagmire, put in place complicated laws susceptible to varying interpretations. They have not ensured that the ones charged for 'non-observance' may be better versed in the laws implementation of which is sought. Thanks to the wisdom of their counsels. Men in the sales tax fields are not withdrawn to redeem damage caused by improper and undue pursuits (of law) to harass subjects of the state, thus damaging the social fibre, pushing drifting away of affected from the national cause.
What should be targeted is not just increase in the number of taxpayers. It should be fortifying tax recovery potential, possible even with decline in the number of taxpayers. To strengthen social fibre through improved corporate culture, reduce load on tax collection machinery, the state should look to. Juxtapose yield with tax recovery cost, it should. Promote 'capital formation' particularly, at the level of less privileged should be strived. Side by side cultivating tax culture should be light to which we should travel.
It may be worthwhile to have extended help of Tax Ombudsman. Acting in advisory capacity in terms of section 9(4) of the FTO Ordinance, at the end of each month, the Tax Ombudsman may refer cases of injustice and grave loss to the state, including loss to the social fibre by undue shows of might, to a committee of Joint Secretaries from Ministries of Finance & Law. Summaries of such reports should be part of working papers presented to committees which consider promotions of tax department's officers.
Required also is lowering the sales tax rates, both federal and provincial. The higher the rate of tax, the more is temptation to evade and avoid. We have to go for a rate of tax which has least temptation to evade or avoid. Also needed is having a tax exemption limit, say Rs 5 million per annum, up to which no sales tax would accrue. The proposed exemption limit should be with no ifs and buts, as is the case with cottage industries - signified by section 2(5AB) of the Sales Tax Act, 1990. The tax administration should be conscious that percentage recovery cost in smaller cases could be relatively higher and not much may flow to the state by the sort of squeeze drives.
Need to have training courses for tax officials in English, Accounting & Law as also workshops in different modes of business viz. exports, garments, chemicals and textiles etc., to broaden their vision, is long overdue, one may reckon. To improve concepts and plays of sales tax statutes, badly needed is to bring out Urdu versions of the tax laws. Imparting education, these steps may lead to having improved revenue collection, besides building improved populace - government relations.
(The writer is Advocate & Corporate Counsel. E-mail: mufti1002001@yahoo.com)

Copyright Business Recorder, 2018

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