After Independence from the "British Rule" on 14th August 1947, the Pakistan government adopted the pre-Partition Income Tax Act, 1922. The provisions of the Act were extended to the whole of Pakistan, except special areas. The Income Tax Act, 1922 provided a complete machinery and procedure to assess tax. The distinction between total income and taxable income was introduced thereon. It continued for 57 years till 1979, when "Income Tax Ordinance 1979" was introduced. It replaced the Income tax Act, 1922. However, as a result of subsequent suggestions and ways and means to improve the existing structure, the Income Tax Ordinance 2001 has been made applicable to areas all over the country.
Actually a lot of changes have been made through the Finance Order 2002, and subsequent the Finance Act, resulting in the enforcement of "Income Tax Ordinance, 2001 effective from 1st July 2002 and onwards. Therefore, the returns of income are being assessed and examined under this "Law". The primary enquiry to the scheme of taxation so far adopted in last 68 years reveals that it fails to ensure redistribution of wealth among different groups of society. Taxation of poor as a result of imposition of "indirect taxes" is the order of the day, when duties, surcharges, taxes on commodities are imposed in every budget. The burden ultimately passes on to consumers. This is a curse that badly affects the social life structure of the poor and middle class of society. The poor are overburdened with indirect taxes and imposition of arbitrary taxes.
The rich in Pakistan are either outside the tax net or do not pay personal taxes in accordance with their actual ability to pay taxes. This is because we go with the explanation and definition of "income" as defined under section 2(29) made as under:
"Any amount chargeable to tax under the Income Tax Ordinance". In Pakistan, source of income is defined under section 2(40), includes the income which a person earns in Pakistan, irrespective the said income is received or not like salaries by employment, income from business carried on in Pakistan or earned outside Pakistan, business income of a non-resident having permanent establishment in Pakistan, dividend income, profit on debt, royalty, income from the lease of property, exploring natural resource (in Pakistan), pension, annuity, technical fee, gain arising on disposal of share/assets etc, etc.
Total income as defined under section 2(69) is as follows:
a) Salary; b) Income from property; c) Income from business; d) Capital gains; and e) Income from other sources.
Taxable income as defined under section 2(64) of a person for a "tax year" is the total income of the person for the year as reduced by any deductible allowances. However, taxable income shall not be below zero.
Core issue: Masha'Allah Alhamdulillah 68 years have already passed and another 50 years and many years shall also pass, but we will not be able to change the trend of deficit budgeting to positive budgeting. Different surveys, internal and external, show that black economy (black money) runs parallel to the white economy and least it is not less than four times. How we are going to overcome and broaden tax net but voluntarily.
My humble suggestion is that definition of "income", "total income" be broadened to include, "(f) total income as defined under section 2(69) of Ordinance or the amount spent as a personal expenditure by a person (individual) in any financial year whichever is higher."
To elaborate further, the writer may be allowed to narrate a real factual story. The director of one corporation asked his clerk at his farewell ceremony on retirement that from now onwards how is be going to face the limitation of the pension income, but surprisingly be stated that he had already booked a small house and all instalments have faithfully been paid but not from the salaries [hidden income etc]. This shocked the boss.
A similar situation exists in the lower and lowest social set-up. Income earned is Rs 10,000 to Rs 18,000 but actual expenditure of any low class individual is not less than 50,000 rupees, exceptions may be few and their faces can be read without difficulty. This situation may be found in higher social cultural, higher income group cases as well.
Surprisingly, MPAs, MNAs, Senators, Bureaucrats (civil) fall in this category and every now and then we hear their loyalty towards discharging tax payment which mostly is nil as appears in newspapers. This is the state of our whole society set-up. God forbid us, but living in the same society conclude favourably but we stand to oppose this.
Let there be an amendment to collect what is actually and really due towards our national exchequer. This perhaps may be the beginning of new era which we wish and aspire and pray for it. God bless us.
Let the definition of total income be broadened. The proposed clause (f) in Section 2(69) and definition of total income shall include any amount of personal expenditure to bring the real tax payment towards national exchequer. This step above shall fill the gap; it is hoped and prayed.