After our hectic campaign of many years - it started way back in 1995 - the Federal Board of Revenue (FBR) has at last admitted its failure to get tax returns of all those who earn taxable income - the figure is not less than 25 million, whereas tax returns, received up to December 31, 2009 were below 2 million.
We have been pleading consistently that Pakistan's real tax potential is three to four times more than what the FBR collects. The policy of appeasement towards tax avoiders and evaders - mostly the rich and mighty - has made us a beggar nation - especially when the rulers spend on their luxuries whatever is paid by the taxpayers.
The FBR's failure is all-pervasive - on all fronts, eg revenue collection, widening of tax base, and recovery of arrears, voluntary compliance, reform process and what not. They keep on claiming "satisfactory performance" (sic) to convince their foreign masters - IMF and World Bank - that Pakistan deserves more and more lending.
This is the same propaganda that the Musharraf-Shaukat duo used to indulge in to hoodwink the nation that the begging bowl was broken. The reality is that the tax potential of at least Rs 4 trillion has not even been considered by foreign donors and the FBR - obviously it requires bringing the ruling elite into the tax net and relieving the poor from the unnecessary tax burden.
This is not desirable due to the criminal culpability of the ruling elite, comprising indomitable civil-military bureaucrats, inefficient-cum-corrupt politicians and greedy businessmen. Since September 2009 FBR has launched a media campaign, threatening all and sundry that "the law could come knocking...Hiding? Not a chance!...Put your house in order by 25 January 2010" (earlier deadline was 31 December 2009). In these expansive advertisements, the people are informed that "The computerised database of FBR has information on every financial transaction conducted by every single citizen of Pakistan.
Finding out who is avoiding tax registration or filing, and who is concealing income, is a matter of a few clicks"! While giving the last and final call of 25 January 2010 the FBR is asking, "Let our taxes give Pakistan a self-sufficient future free from want, suffering and poverty".
Is this campaign a result of the total non-co-operation of the people in discharging their tax obligations? Are ordinary Pakistanis not paying their taxes? By extending the deadline of the 31 December 2009 to 25 January 2010, it is admitted by the FBR that even the expensive "media campaign" has failed to convince potential taxpayers to file income tax declarations.
In Pakistan, the number of mobile users alone, who are paying an annual bill of more than Rs 100,000 (minimum taxable limit for non-salaried persons), is not less than 20 million. There are 25 million account holders/investors, who make a huge interest income. Why have they not been brought into the tax net? Does the FBR need any further proof to establish how inefficient and ineffective it is?
The FBR stalwarts cannot deceive informed people of their "wonderful performance" (sic) by just manoeuvring and playing with their figures. The FBR is taking credit of about 200,000 extra e-returns (mainly filed by salaried persons) this year, but is completely silent about its persistent failure to issue notices to at least 25 million non-filers, despite having data, according to its own admission in advertisements, that they earn taxable income.
Tax wizards sitting in the FBR have been constantly dubbing the majority of the Pakistanis as tax evaders or avoiders. The reality is: the people of Pakistan are the most heavily taxed (rather over-taxed) nation in the entire Asian region. As far as the tax base is concerned, not only the total taxable population but millions of those having below taxable incomes, are paying taxes at source.
In most of the cases, tax deducted is the full and final discharge of liability; hence the taxpayers do not file statements required under section 115(4) of the Income Tax Ordinance, 2001, which has created an impression that our income tax base is narrow. The FBR could have allotted them National Tax Numbers to dispel this misconception, but is least concerned.
For a long time now, FBR has been apologetic (specifically before the IMF and the World Bank) that total income tax payers (registered) in Pakistan are just 1.5 to 2.0 million. This is a myth. The reality is that since July 1, 1992 all commercial electricity consumers are paying minimum income tax of Rs 60 per month, whether their income is chargeable to tax or not. People earning interest on bank deposits - their number is not less than 15 million - pays 10% mandatory withholding tax, irrespective of their quantum of income.
The total number of commercial electricity consumers in Pakistan, according to Economic Survey of Pakistan 2008-09 is over 20 million. The FBR in its Year Book 2008-09 admitted that tax collection from telephone/mobile and electricity users and transport owners was over Rs 30 billion.
The total number of mobile and land-line telephone users, subjected to withholding tax in the country, is in excess of 60 million - yet the FBR claims that our tax base is narrow. The reality is that the FBR is incompetent - it has failed to book all of them on tax-roll.
Had it been done, we could today have boasted of nearly 25 million taxpayers! The people of this country are accused of not paying taxes; whereas the reality is that even a petty shopkeeper in a village (whose total income is much below the minimum taxable limit of Rs 100,000) is paying tax as high as Rs 720 per annum along with the electricity bill.
On the contrary, the big absentee landlord of his village, who is earning millions by merely leasing out orchards, is not paying even a single penny as personal income tax. The poor are paying the exorbitant 16% sales tax on everything even on salt sold under brand names.
Out of a total population of Pakistan, 43.1% are below the age of 15 years - the overwhelming majority of them will not have taxable income. The rural labour of 40 million earns a meagre income. Thus, the total income tax-paying population with a taxable income can safely be around 25 million. The FBR is receiving income tax from over 60 million people - many of them with incomes below taxable limit.
The poor are paying not only indirect taxes, but also income tax at source, under various provisions of the Income Tax Ordinance, 2001 - section 148 to 156A, sections 234 to 236. Thus, in reality, the people - except the ruling trio - are over-taxed. In return for paying huge money to the State, the masses get nothing - the rulers ruthlessly waste their taxes for personal luxuries and comfort.
The successive governments have failed to fulfil even their basic obligation of safeguarding life and property of people, what to talk of providing them basic facilities of health, education, housing, water and other civic amenities. It was the duty of the FBR to allot National Tax Numbers (NTNs) to all those who paid tax under sections 148,149,150,151,152,153,154,155,156, and 233, 234 and 235 of the Income Ordinance, 2001.
Had the FBR just issued notices for filing of return to all commercial electricity consumers, mobile and land-line users (paying a bill of Rs 100,000 or more) and vehicle owners, today we would have over 25 million registered taxpayers. The FBR did not bother to prepare a database of such persons, though millions of rupees were spent (rather wasted) on so-called automation. We asked for building a reliable Tax Intelligent System (TIS) way back in 1995. Now, the FBR claims to have one - but why it has not been used and when will it be used is till a mystery.
Let us hope that, after the expiry of the deadline of 25 January 2010, this nation will get the news of issuance of income tax notices to all the rich secretaries and generals, politicians and businessmen to explain their colossal wealth. The FBR is guilty of criminal negligence in reporting the incorrect figures regarding income taxpayers in Pakistan and not compelling those having enormous wealth and income to file returns. Its performance is pathetically abysmal. It is just thriving on withholding taxes and voluntary payment - constituting 92% of total collection.
The contribution of field officers [collection on demand through investigation or audit] is just 8% of total collection. It proves beyond any doubt how unproductive this organisation is. The crumbling, inefficient and corrupt tax apparatus is the root cause of the present scenario.
It works as the handmaid of the ruling elite. The ruling trio is not paying taxes and amassing enormous wealth through the exploitation of masses and corruption. The tax base cannot be expanded through a malicious media campaign by distorting facts and safeguarding the privileged classes. The wealthy classes are enjoying all the benefits and paying no taxes.
The FBR protects the big tax evaders - massive over and under-invoicing is not possible without their criminal culpability. The SMEs, salaried persons and the service sector, already over-taxed, are victims of the FBR's highhandedness.
It is high time that instead of indulging in a malevolent campaign against the people of Pakistan, the FBR should levy taxes on the ruling elite - the 5% possessing 95% of national income and wealth, but contributing only 2% in tax collection [For tapping real tax potential of Rs 4 trillion, see our article, Taxation, egalitarianism and self-reliance, Business Recorder, November 6, 2009].
(The writers, tax lawyers, are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS)