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May 30, 2017

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Government needs to revisit filer, non-filer distinction

The budget and post-budget speeches of finance minister Ishaq Dar single out non-filers to be put under punitive measures in the interest of ‘bringing more people in the tax net’. In his post budget speech, the minister said the government has not put any burden of taxes on common citizens rather they have tried to net the non-filers; as if all non-filers are rich tax evaders.

Currently, there are only 1.158 million filers, which is not enough to feed the economy. Over 80 percent from among 140 million cell phones and 42.5 million internet users may not be eligible as filers but still they have to pay 14 percent (fiscal year 2016-17) and 12.5 percent (fiscal year 2017-18) as advance tax on their bills.

Technically filers can get this advance tax back but non-filers cannot. Hence, billions of rupees remain unclaimed on account of advance tax on use of phones and internet. Still the finance minister insists they have not burdened common people and only tightened the noose around non-filers.

The filer, non-filer discourse during a couple of years has been used to identify tax payers and tax evaders in broader terms. But the two broad categories have not been sub-categorised; especially the most maligned one, the non-filers.

There is a need to see whether or not the non-filers are homogenous and all are liable to be punished by imposing increased tax ratios.

This very issue should not be discussed just as an issue of hard core economy but should be seen in the light of the political economy perspective.

According to section 114 of the Income Tax Ordinance (ITO), the people who own immoveable property with a land area of 500 square yards or more, a flat having covered area of 2,000 square feet or more and a motor vehicle with an engine capacity above 1000CC require to file their income tax returns.

Earlier, there have been some more such requirements. So far until May 23, just three days ahead of the announcement of the federal budget, 1.158 million Pakistanis filed their income tax returns, just a fraction of the adult population.

Even if we do not compare the total population which is more than 200 million, let us just take those who use mobile phones and internet as the population to be compared with the ratio of tax return filers.

For political economy analysis of filers and non-filers discourse, let us take 140 million people (according to Economic Survey 2016-17) who use mobile phones to make calls and 42.5 million people who use internet either on their smartphones or on their computers/laptops. Many of them may overlap the total figures, so both figures are not being added to make it a total figure.

A total of 140 million mobile phone users during the current fiscal year (2016-17) have been paying 14 percent advance tax on their bills in addition to regular tax (15 percent). In a sense on each Rs100 bill, they pay Rs29 as tax. So, 42.5 million people on each Rs100 for their internet bill, pay Rs29 as tax.

It is to be noted that 14 percent advance tax both on use of mobile phone and internet is supposed to be returned to the consumers upon filing income tax returns.

This means, only 1.158 million people can get their 14 percent advance tax on internet and mobile phone bills back through filing of income tax return, whereas 138.84 million non-filers cannot claim this amount.

If we calculate this unclaimed money it would be billions of rupees.

Out of 138.84 million non-filer cell phone users, according to an estimate, hardly 8.84 million people would fall under the category of ‘potential filers’ under section 114 of ITO.

This means a net of 130 million people would still remain non-filers as they are low paid people from working class who use cell phones for connectivity and do not own any moveable or immovable properties or taxable income.

If those 130 million people spent Rs300 per month on use of mobile phones, the total advance tax collected in fiscal year 2016-17 would be Rs5,460 million at 14 percent, while it would be Rs4,875 million in fiscal year 2017-18 at 12.5 percent.

The government as a result would collect Rs58,500 million from non-filers who use cell phones.

Similarly, out of 41.34 million non-filer internet users, some 10.34 million may fall in the category of ‘potential filers’, the remaining 30 million would not be eligible to be pushed as filers.

So, if the  30 million poor non-filers on an average spent Rs500 per month on internet, the total amount collected as 14 percent advance tax for fiscal year 2016-17 would be Rs2,100 million, while at
12.5 percent advance tax in fiscal year 2017-18, this amount would be Rs1,875 million. With this average, during fiscal year 2017-18, the government would collect Rs22,500 million from common internet users who are not filers.

The government needs to revisit its ‘filer and non-filer discourse’ as the bulk of non-filers fall in the category of common citizens who have been burdened with unclaimed advance tax.

No doubt the tax base needs to be broadened for a stronger economy, but not at the cost of the millions of poor.

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