The FBR's decision to block the mobile SIMs of individuals who haven’t filed their taxes is a master class in how not to collect taxes, and how to discourage people from filing taxes. The list includes around half a million plus individuals, against 180 million-plus total mobile phone subscribers. This effectively means that the FBR is not penalizing all individuals who haven’t filed taxes, but only penalizing those individuals who had filed taxes earlier, but haven't filed the most recent tax returns. Effectively, those individuals who were compliant earlier are being penalized for being compliant. Those individuals who have never filed taxes do not have to worry about any of this because they can continue using mobile connectivity without any legal obstruction. But those individuals who had been filers earlier, and for some reason could not file taxes lately (even though they may be taxpayers) are being targeted.
Ironically, by disconnecting such SIMs, the tax authorities will be losing out on revenue being generated through the consumption of airtime and data using mobile networks. This will also reduce the revenue and profitability of telecom companies, which would further reduce profits that can be taxed by tax authorities. Instead of increasing tax revenue, this will reduce tax collection. Assuming an Average Revenue Per User of $1 per month in Pakistan, blocking these users would entail a loss of Rs1.68 billion for telecommunication companies annually, while resulting potentially in a tax loss of at least Rs336 million on an annual basis. Not the smartest tax strategy around. The signal that tax authorities are sending here is that non-compliance is the best route forward because once an individual complies, they are then on a perpetual target list. In such a scenario, it makes little sense for non-filers, or those who have never filed taxes, to actually file taxes, even though they may be taxpayers. The whole notion of non-filers is flawed at best. Every adult should be filing taxes. The process for filing taxes should be made easier, and more intuitive. Tax filing should be encouraged, rather than being penalized. A list that includes identity details of more than half a million people is effectively a deterring factor that will push more people away from filing taxes.
The recent lukewarm response to the registration drive for taxing retailers is a clear signal that there is little to no trust in tax authorities. This cannot be changed with more penalties and more signals that suggest that filing taxes would mean that you would be harassed in the future. Every citizen pays taxes in the country, whether that is through consumption of mobile airtime, or through consumption of any other goods, and services. They need to be treated with a certain level of respect and dignity. Individuals who do not file taxes need to be incentivized through positive reinforcement, rather than being discouraged through penalties. The carrot and stick approach entails that both the carrot and the stick be used from time to time. In the case of tax authorities, the stick is often used, and even that stick is a weak one. There is a dire need for reconfiguration of the messaging and communication that is done by tax authorities. There is a need to revamp tax policy to make it more people-friendly and responsible. Harassing taxpayers is not a strategy that any tax authority should adopt if it is actually serious about increasing tax collection.