Taxing task Huzaima Bukhari & Dr Ikramul Haq As elites are unwilling to pay taxes on their unprecedented and exorbitant perquisites and benefits, burden of taxes is shifted on the weaker sections of society. The ruling elites of Pakistan — militro-judicial-civil complex, businessmen-turned-politicians and absentee land owners — are responsible for pushing the country into a deadly debt quagmire. The governments beg for bailouts from foreign lenders and ironically talk about self-reliance! They make tall claims about reforming the tax system but shamelessly use the Federal Board of Revenue (FBR) as their handmaid in getting tax-free benefits of billions of rupees. Due to funding of luxuries of the ruling elites, tax concessions through Statutory Regulatory Orders (SROs), non-collection of agricultural income tax, non-taxation of luxury and commercial properties e.g. clubs and golf courses, unprecedented exemptions given to generals, judges and high-ranking civil officials, the national kitty suffers. If these losses are recouped our tax-to-GDP ratio will be 15 per cent — presently it is only 8.2 per cent. The narrative that Pakistanis do not pay taxes — popular with analysts, tv anchors, academicians, policymakers and foreign donors — is a farce. The ground reality is that the common citizens in Pakistan are over-taxed people, whereas the elites not only enjoy unprecedented tax breaks but also thrive on the taxes collected from the masses (a scenario parallel to the 1780s France). There is a dire need to expose and end the exploitation inflicted by the elites. They are solely responsible for the country’s socio-politico-economic decay, but the media’s owners, being beneficiaries of the system, cunningly divert the attention of the masses towards trivial issues. While these elites are captives of self-interest and victims of self-aggrandizement, the concentration of power and wealth in their hands, coupled with lust for control, is fueling perpetual institutional confrontations, civil commotion and economic miseries for the poor. About 60 million active mobile users are paying exorbitant tax of over 34.5 per cent. Majority of them have income below the taxable limit. It is an undeniable fact that about 60 million active mobile users — prepaid or post paid — with effect from July 1, 2013 are paying exorbitant tax of over 34.5 per cent, federal excise or sales tax of 19.5 per cent and adjustable income tax of 15 per cent. Majority of them have income below the taxable limit. There is no way they can get refund of the adjustable 15 per cent income tax withheld at source, as cost of filing of return would be a lot more and the procedure is too cumbersome (every refund application is to be filed online) and even if all the requirements stand fulfilled, the tax officials would block payment and harass. This is the reason why around 0.8 million filed returns whereas over 50 million paid income tax as mobile users alone. Ishaq Dar et al sitting at the top are either not aware of these mundane realities or they are least bothered. While the poor are subjected to exorbitant taxes, the elites are grabbing state property and are not paying taxes on unprecedented perquisites and perks enjoyed by them. We all know who get state lands as rewards and awards (free or at throwaway prices). On their perquisites and benefits, they do not pay taxes. Adding insult to injury, the taxes collected from the masses are shamelessly wasted on their luxuries — palatial bungalows, fleets of cars, army of servants, foreign tours and what not. The FBR miserably failed to enforce tax laws as evident from recently-published tax directory of legislators — massive non-compliance by them reflects sadly on prevalent political culture and pathetic enforcement capability of the apex revenue authority. It is now proved that the rich and mighty do not pay income tax and regressive indirect taxes are making the rich the richer and the poor the poorer. So, the FBR miserably fails to meet the fixed revenue targets every year. In 2012-13, the shortfall of Rs. 441 billion was the worst ever in history. The FBR has failed to tap the actual tax potential that is not less than Rs. 8 trillion as the rich and mighty enjoy exemptions and concessions and billions are lost due to inefficiency and corruption. At provincial level, there is no will to collect agricultural income tax from the rich absentee landlords — share of this tax is even less than 0.5 of GDP! Tragically, the poor whose income falls below taxable limits under the income tax law are criminally taxed — funds extorted from their hard earned money are plundered and wasted by the elites. The powerful civil-military bureaucracy, ministers, state ministers, advisers, Senators, MNAs and MPAs together squandered Rs500 billion in the fiscal year 2012-13 on perks and perquisites alone. Not only this, the powerful militro-judicial-civil complex did not pay a single penny as tax on plots and benefits in utter violation of section 13(11) of the Income Tax Ordinance, 2001 [“the Ordinance”], which says: “Where, in a tax year, property is transferred or services are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the property or services determined at the time the property is transferred or the services are provided, as reduced by any payment made by the employee for the property or services”. Section 14(b) of the Ordinance defines “services” to include the provision of any facility” and the concept of “fair market” is defined in section 68 as under: “68. Fair market value.– (1) For the purposes of this Ordinance, the fair market value of any property or rent, asset, service, benefit or perquisite at a particular time shall be the price which the property or rent, asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time. (2) The fair market value of any property or rent, asset, service, benefit or perquisite shall be determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash. (3) Where the price referred to in sub-section (1) is not ordinarily ascertainable, such price may be determined by the Commissioner”. Section 39(1)(j) of the Ordinance is also attracted which declares the following as income chargeable to tax: “The fair market value of any benefit, whether convertible to money or not, received in connection with the provision, use or exploitation of property”. It is sad to note that militro-judicial-civil complex blatantly violates tax provisions and does not pay any tax on getting state land, free accommodations and other benefits — all covered in section 13(11) and 39(1)(j) of the Income Tax Ordinance, 2001. The FBR is not at all interested to tax them — their top notches are also beneficiaries of these benefits. Since the elites are unwilling to pay taxes on their unprecedented and exorbitant perquisites and benefits, burden of taxes is shifted on the weaker sections of society. This is the real dilemma of Pakistan. During the last regime, an ex-member FBR wrote a letter to then finance minister, Abdul Hafeez Shaikh, that massive tax evasion/loss of revenue had occurred due to non-taxation of government property given to the high-ranking officials at concessional rates — the minister took no action and same is being done by Ishaq Dar. The FBR, like previous years, is showing inability to collect partly target of Rs. 2475 billion — it is reportedly reduced to just Rs2345 billion. The FBR stalwarts are not inclined to tax 3.8 million tax evaders despite claiming before the Parliament that their data is available. Instead of taking action against them, the FBR, at the command of political masters, is busy in giving exemptions, concessions and amnesties to the tax evaders. The solution lies in removing all tax exemptions and benefits and monetizing the benefits and perquisites of the members of militro-judicial-civil complex. The FBR, first of all, should recover lost tax from delinquent elected members and mighty civil and military officers who are beneficiaries of getting state lands and free benefits. Recouping of lost revenue of billions of rupees from them and beneficiaries of loan write-offs will certainly convey a loud message to all that the FBR means business and nobody is above law. As the mighty sections of society are not paying taxes due from them, the common people rightly argue against discharging their tax obligations, especially when the state has failed to protect their lives and properties, what to talk of providing basic facilities of health, education, housing and transportation.
Posted on: Sun, 16 Mar 2014 05:18:39 +0000
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