While presiding over meeting on FBR reforms the Prime Minster emphasised for bringing non-filers into the tax net. He rightly pointed out that rigidity of tax collection machinery, coercion on the part of tax collector and corruption of ruling elite has shaken the confidence in FBR. He called for early drafting of comprehensive rules and regulations for tax recovery from tax evaders and bringing “Benami” properties acquired by wealthy people who are not paying taxes.
Simplification of tax regime by reducing the number of taxes and eliminating the element of coercion in tax collection has been the long standing demand of business community for improvement business environment. The complicated tax regime was consisted of 47 different direct and indirect taxes. The number of taxes has been reduced and online tax payment facility has been introduced. Pakistan has gone up in the Word Bank ranking of Ease of Doing Business Index from 147 to 133position. Likewise there is a slight improvement in the corruption index. However, the current desperate economic situation needs drastic measures which are being hindered by the stiff neck and well entrenched bureaucracy sitting in the ministries and divisions dealing with the country’s economy over the past 5to 10 years.
Pakistan Tehrik-i-Insaf government has so far failed even in symbolic achievement of two goals of broadening a narrow tax base and enhancing revenue collection. The failure on this front is reflected in the increase of domestic borrowing which is going on at a fast speed. Both the Prime Minister and Finance Minister had vowed to double the tax collection by broaden the tax base. Perhaps they did not know that sluggish and inefficient Inland Revenue Services department of the FBR cannot perform this job unless they realise that strict accountability is coming. It was because of the strong arm strategy of the President Musharraf government and simplified tax structure devised by his advisor Dr. Salman Shah that the number of active tax payers reached to 2.4 million, although the drive for the documentation of the economy failed due to the rigidity of tax collectors. The lope-holes in the “Benami Act” 2017 needs to be plugged and the law should be made strict if tax imposition on such assets is really intended.
Over the past ten years the number of tax return filers has dropped to 1.2 million and five tax amnesty schemes including the one announced on the advice of Pakistan Banking Conical last year could not succeed and only few thousand wealthy people holding big properties abroad and in the country declared their assets. A few months ago, the FBR started sending notices to non-filers of income tax returns. Deliberately or inadvertently proper home work was not done for this campaign. Notices asking for the submission of tax returns were sent on either incomplete or invalid addresses. When first notice was returned by courier service undelivered, a second one was again sent on the same address which certainly bounced back. Even then the address was not corrected and account of estimated tax liability was attached with the third notice. How come those Inspectors and other field officers of the Inland Revenue services Department collect the correct addresses of wealthy people and the data entry branch did not establish an authentic database of potential taxpayers. There are also complaints of lack of coordination among the different wings of FBR for data sharing, particularly about the Information Technology Wing.
Data relating to more than 2500 cases of purchase of expensive properties, vehicles and receipt of high rental income by non-filers has been handed over to the relevant FBR field offices. It is pertinent to mention that a significant majority of identified high net worth individuals belong to the areas to which the jurisdiction of Income Tax Ordinance is yet to be extended. Azad Jamu and Kashmir, tribal districts of former FATA and settled districts of Malakand Division don not fall with the tax jurisdiction of federal government. No rocket science is required for building authentic data base of non-filers and “Benami” asset holders who fall within the ambit of the Income Tax Ordinance. It can be done with the collaboration of NADRA. If there is a will there is a way. In the prevailing desperate situation enactment of comprehensive tax laws and their implementation are inevitable.