Comment: Laughable measure to ‘enhance’ tax collection

Revised rate of withholding tax on vehicle transfer fee puts question mark on govt’s motive.

KARACHI:

If you are thinking about a car upgrade or even saving up for your first, you might want to save a bit more before deciding to make the transaction.

Car prices are likely to shoot up with the increase in withholding taxes across all engine categories. Its effect will boil down to second-hand vehicles as well.

The government, in its ambitious bid or under the pretext of enhancing tax collection, decided to increase the amount of withholding tax on vehicle transfer fees with the surge shamelessly going up to 800%.

The Sindh Excise and Taxation Department criticised the government’s move – not because it doubted its intention of course – but because it seems laughable on its face.

Provincial Minister Mukesh Chawla, who looks after the excise and taxation department, was definitely not thrilled. He said the Federal Board of Revenue (FBR) – a body responsible for the formulation and administration of fiscal policies and levy and collection of federal taxes – issued the order on June 25, directing the province to start tax collection under the revised rates from July 1. He said the implementation by the given date was “impossible”. The reason why Chawla said that was because the Sindh department does not have access to information about people who file their income tax returns and those who don’t. And this is a salient feature of the new tax regime.

People, who file income tax returns, will pay less withholding tax than those who don’t — the government’s intention is to encourage filing of tax returns. However, the move to increase the withholding tax on those who file them raises doubts on the government’s real motive.

Chawla stated that the lack of access to that information means the FBR needs to send that data with the Sindh department upgrading its systems as well. Just thinking about what the governmental departments need to do to achieve this is a monumental task.

The provincial minister also said that the new rates will discourage people from having vehicles transferred altogether as he dished out the trump card in any argument — the law and order situation in the country.

Let’s be truthful and candid. With exorbitant rates that cross the six-figure mark for a vehicle in the 1,301-1,600cc engine category for non-filers, people will not get the car transferred at all. Hundreds of cars exchange owners at the excise and taxation department in Sindh every day. There is enough incentive for stakeholders to find a loophole, plug it and use it to their advantage.

A dealer suggested an affidavit being signed, authorising the potential buyer to use the potential seller’s vehicle (the word potential being used because the transaction does not actually take place since the ownership has not changed hands). Seeking insurance claims would require the consent and presence of the potential seller who will not cherish the involvement especially after he has gotten “rid” of the vehicle.

Here in Pakistan, the thinking is such that people wrongly drive into one-way streets to avoid making a lengthier turn that, they think, would save time and that precious millilitre of fuel. If they violate traffic laws, drivers would rather pay the warden a few bucks to get out of paying the fine to the government. With such a twisted sense of efficiency and genius minds to defend those arguments, what makes the government think that the same people would start filing tax returns.

If one was even inclined towards dismissing this argument, how about the FBR’s incapability of refunding withholding taxes? The FBR is famously criticised for being inefficient and grossly mismanaged. Is it going to start refunding the withholding taxes they owe to public straightaway now?

Legally, every earning individual needs to file returns. The process, however, is cumbersome with the complexities tantamount to the difficulty level of a dissertation. The worst part is that individuals who even want to file these returns stay away due to the complex nature of the FBR document.

But, legally, one has to file those returns no matter how difficult in nature. It is binding on every earning citizen.

The government stated that it took measures in an attempt to widen the tax base and enhance collection. How does it intend to do that if the collection is through withholding tax, which the FBR is bound to refund at the filing of returns? How does the government expect us to believe that the increase is to encourage filing tax returns when upto a 400% increase in withholding tax is also levied on tax return filers?

Maybe the government is banking on the public’s laziness in filing these returns so that it gets to hold the withholding tax. The government has also decided to penalise individuals who do file returns.

But maybe the public is banking on the government’s continued inability to enforce laws and has found a way to go around the new regime. Law and order situation is likely to take the hit — since a car used by a person under someone else’s ownership is easier to commit crimes in. But does the government seem to care?

It will when the new tax regime falls on its back because the public will find a way to save the money.

Withholding taxes in ownership changes that take place within 5 years

Engine capacity (cc)	Rates for filers in rupees	Rates for non-filers
Up to 850	10,000	10,000
851–1,000	20,000	25,000
1,001–1,300	30,000	40,000
1,301–1,600	50,000	100,000
1,601–1,800	75,000	150,000
1,801–2,000	100,000	200,000
2,001–2,500	150,000	300,000
2,501–3,000	200,000	400,000
3,001 and above	250,000	450,000

 Published in The Express Tribune, June 30^th, 2014.

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