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October 12, 2018

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FBR must double its efforts to increase tax base, revenue collection

LAHORE: Serious efforts are needed to increase the tax base and revenues, and the current approach of first targeting 300-1,000 big tax evaders is not going to work. The tax authority must add at least one million evaders through technology.

The Federal Board of Revenue (FBR) is trying to create an impression that high revenue officials would personally pursue high profile cases, and they would have no time for smaller tax evaders.

It is indeed surprising, because electronic records exist of every citizen who has travelled abroad, purchased a vehicle or property, stayed at a five star hotel, or is a member of an elite private club.

In all cases, the filer or non filer has to pay withholding taxes on whatever he/she spends or buys.

Technology has made it easier to compile the high spending by each individual, as the number of his computerised national identity card is entered on each spending.

The FBR seems to be content with the withholding tax it collects against each transaction and never bothers to confront the spender on the source of income from which the spending was done.

Pakistan produces around 275,000 cars and imports over 60,000 used cars. Around 30 percent of them are filers and the remaining 225,000 are non-filers (non-filers have now been banned from buying new cars).

This was the easiest avenue to nab over 200,000 non-filers every year from the automobile sector only.

In the same way, around 500,000 new houses are built every year in Pakistan. They pay withholding tax at the time of purchasing land.

Their record is available with FBR, but hardly any new house owner is confronted by the tax collectors. Even if someone is asked to show the money trail, the matter settles out of official domain through bargain.

Shops flooded with goods worth millions stay out of the tax net and the tax collectors look the other way as they wet their beaks while the state suffers.

The FBR has not yet taken any initiative that penalises known tax evaders. There are more luxury cars in Pakistan than the total number of tax filers.

There are 2.2 million shops in the country that are exempted from normal tax regime. They are required to pay a nominal percentage of one percent over their declared annual turnover (this declaration is not challengeable or auditable). Even then hardly 20 percent of the shops pay this tax.

Generating revenues indirectly is easier and without much effort. It is said that the industry’s contributions in the taxes collected annually is 60 percent.

It is only because of this high percentage that the industry ‘pays’, they think that they are over burdened with taxes.

A deeper look into these taxes reveals that around 52 percent of these taxes are collected indirectly, which means the burden of these taxes is actually borne by the masses and not the industry.

If anyone is over burdened with taxes it is the common man.

Governments after governments are penalising the poor because they are voiceless. One way of this is the indirect taxes on the utility bills.

When the electricity tariff was rupees three per unit, the government deducted income tax on bill of over Rs1,000.

Now the average tariff for domestic consumers is Rs12.62 per unit (Rs9.40 normal 19 hours’ tariff and Rs16.04 prime time 5 hours tariff).

The amount at which the withholding income tax is deducted still remains Rs1,000. This means that smaller users of power also fall into the withholding tax regime.

The filers have the option of getting this tax adjusted at the time of filing tax returns, but the poor that are non-filers get no refund at all.

There are many such taxes in the system which are anti-poor, and need to be reviewed and upgraded to provide relief to the poor masses.

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