What budget 2017-18 means for filers and non-filers?

1.158m filers not enough to feed economy; over 80% among the users of 140m cell phone sims, 42.5m Internet connections may not be eligible as filers; billions

of rupees remain unclaimed as advance tax on use of phones, Internet

The budget and post-budget speeches of the Finance Minister Ishaq Dar single out non-filers to be put to punitive measures in the interest of ‘bringing more people in the tax net’. In his post-budget speech, the minister, in a bid to justify his tax, withholding tax and advance tax measures in the budget 2017-18 has said that 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.

At the moment, there are only 1.158 million filers that are not enough to feed the economy; over 80% from among the users of 140 million cell phone sims and 42.5 million Internet connections may not be eligible as filers but still they have to pay 14% (fiscal year 2916-17) and 12.5% (fiscal year 2017-18) as advance tax on their bills. In Pakistan, one user uses 1.5 sims. Similarly, Internet connection users are also included in the mobile phone users. 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 by non-filers who are not even eligible to file returns and are common people. Still the finance minister insists they have not burdened common people and only tightened 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-categorized, 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 put to punitive actions by imposing increased tax ratios. This very issue should not be discussed just as an issue of hard core economy but it 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 2000 square feet or more and a motor vehicle with an engine capacity above 1000CC require to file their income tax returns. Earlier, there has 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 the users of 140 million sims (according to economic survey 2016-17) who use mobile phones to make calls and users of 42.5 million Internet connections who use Internet either on their smart phones 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 users of 140 million mobile phone sims (93 million users, each one of them have 1.5 sims in use) during the current fiscal year (2016-17) have been paying 14% advance tax on their bills in addition to regular tax (15%). In a sense on each Rs100 bill, they pay Rs29 as tax. Similarly, 42.5 million people on each Rs100 for their Internet bill, pay Rs29 as tax (14% advance tax and 15% regular tax). It is to be noted that 14% advance tax both on use of mobile phone and Internet is supposed to be returned to the consumers upon filing income tax returns.

Now by all practical means, only 1.158 million people have the opportunity to get their 14% advance tax on Internet and mobile phones bills back through filing of income tax return whereas the users of 138.263 million sims (92.175 million users) are non-filer mobile phone users and the users of 42.5 million Internet connections are the non-filer Internet users. Both kinds of users may be the similar people that is why we cannot add them together rather mentioning them separate. Since they do not file income return (being not qualified) do not claim their 14% advance tax back. If we calculate this unclaimed money which goes to the government kitty unfairly runs into billions of rupees.

Out of the users of 138.263 million sims (92.175 million users) fall into the category of non-filer cell phone users, according to an estimate, hardly 2.175 million people would fall under the category of to be potential filers as defines the section 114 of ITO. This means a net of 90 million people would still remain non-filers as they are the low paid people from working class/common people who use cell phones for connectivity and do not own any moveable or immovable properties or taxable income. Similarly, out of users of 42.5 million non-filer Internet users, some 12.5 million may fall in the category of to be the potential filers, hence 30 million Internet users may not be eligible to come under the ambit of section 114 of ITO and to be pushed as filers.

For political economy analysis, if we assume that 90 million non-filers who are not willful non-filers rather they do not have enough income or properties to be pushed to become filers have to pay 14% advance tax on their mobile phone bills, similarly 30 million same non-filers have to pay 14% advance tax on their Internet bills. They do not have any means to get their advance tax back as the filers do. So, the money deducted as advance tax from them goes to the government kitty as unclaimed. Suppose, 90 million phone users being the poor non-filers (not eligible as filers) on an average spend Rs300 per month on use of mobile phone sims, the total amount collected as 14% advance tax (fiscal year 2016-17) stands at Rs3,780 million, while @ 12.5% advance tax (fiscal year 2017-18), this amount stands at Rs3,375 million. With this monthly average, during the fiscal year 2017-18, the government would fetch Rs40,500 million from 90 million cell phone users; they are indeed common persons non-filers using mobile phone sims.

Similarly, if users of 30 million Internet connections being the poor non-filers (not eligible as filers) on an average spend Rs500 per month on use of Internet, the total amount collected as 14% advance tax (fiscal year 2016-17) stands at Rs2,100 million, while @ 12.5% advance tax (fiscal year 2017-18), this amount stands at Rs1,875 million. With this average, during fiscal year 2017-18, the government would collect Rs22,500 million from common citizens, non-filers using Internet. Hence the total amount, with this meagre estimate, the government would collect stands at Rs63,000 million for no reason. They government had already admitted that last year, it had collected Rs46,000 million from the unclaimed advance tax from the mobile sims and Internet connection users.

Instead of extracting billions of rupees as advance tax unfairly from the poor common people, the government should revisit their ‘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. The finance minister also needs to think that in the garb of non-filers they are over taxing more than 50% of the common Pakistani citizens who are not eligible as tax return filers. No doubt, tax base needs to be broadened for a stronger economy, but not at the cost of the millions of poor who are not eligible as filers but are being punished in the name of being non-filers. They government should stop collecting this unfair advance tax on phones and Internet and other such services.

(The Author is a journalist and analyst. Email: shafmunir@gmail.com)