May the rich be taxed on IMF advice!

LAHORE: There is a need to change the mind-set of our businessmen who claim that they are heavily taxed in Pakistan.

In place of the businessmen, the government should pay attention to what the International Monetary Fund (IMF) chief said in her recent meeting with Prime Minister Kakar. She advised him to tax the rich.

This perception that the rich in Pakistan (most businessmen obviously are rich) are not charged taxes according to their capacity is not limited to IMF, the World Bank and US officials have time and again given similar advice.

Direct taxes like income tax come from the pure income of the earner. Indirect taxes collected by the state are a burden on the general public.

When the government pays heed to all IMF dictates, why is it hesitant to accept this advice?

It is unfortunate that even income tax in Pakistan is mostly collected indirectly, and that too in many cases is passed on to the consumers. Moreover, businesses usually under-report their earnings as well as production.

This not only dilutes government revenues but also cheats consumers who are charged sales tax that has not been paid to the exchequer.

Our businessmen, while showing their contribution to the national exchequer make tall claims. For instance if a company deposits Rs40 billion sales tax and pays only Rs2 billion income tax, it claims that it is adding Rs42 billion to the tax revenues.

The fact however is that Rs40 billion sales tax is paid by the consumers and the company’s own contribution to tax revenues is limited to Rs2 billion.

Many traders and chambers of commerce and industry claim that industry contributes over 60 percent in the total tax revenues of the country.

It is true if the taxes other than income tax are also included. But if we go into the details of taxes, it would be found that only 100 companies pay over 80 percent of the income tax, and 11-12 percent of that income tax comes from the employees, as it is collected by the employers on a monthly basis. And the rest of the income tax is collected from over 50,000 corporate entities.

Most of those who own these entities are very rich if we look at their lifestyle, but they pay nominal income tax.

Even among the 100 top income tax paying entities, around 10 are public sector companies. Then come 12-15 private banks, followed by around 20 multinational pharmaceutical companies, three car manufacturers and one motorcycle manufacturer.

If we look around in our country, we can identify at least 100,000 individuals or firms that can be classified as rich.

Most of them are not on the radar of income tax. We sell on average 250,000 vehicles, but the buyers are not found in income tax filers list.

No one asks them from where they accumulated income. The Federal Board of Revenue (FBR) is content with deducting withholding tax on a specific purchase. The unregistered buyer must be having unaccounted wealth that remains hidden because his other expenditure does not require documentation.

We must formulate a system that makes it impossible to hide wealth. The FBR staff of over 20,000 remains idle. It must be engaged to investigate the lifestyle and source of income of the wealthy tax evaders.

They should also apprehend under-filers of production through technology. International agencies are not fools.

They know the tax potential of Pakistan and they also know that the poor now have no capacity to bear the burden of indirect taxes.

Income tax is collected on the basis of actual net income and no one should be allowed to conceal their actual income. The rich should now stop playing games and start paying their due income tax.