People opting for scheme will not be abiding by most of tax laws. PHOTO: BLOOMBERG
The people filing tax return under the newly introduced Voluntary Tax Compliance Scheme would not be harassed, the Federal Board of Revenue (FBR) reassured a segment of the business that was off the tax books.
The FBR calls it an out-of-the-box scheme and claims that income tax filers have increased beyond one million, and now its policy is to facilitate and not harass the taxpayers.
Tax evasion, exemptions hindering progress
There are more than five million general sales tax payers in the country. The FBR has not been able to encourage these businessmen to become income tax payers. That is its main jeopardy.
Among the one million on the income tax list, only a few hundreds pay in tens of millions, less than that pay in hundreds of millions and over 80% pay in thousands of rupees.
The actual burden is borne by a few big businesses while a vast majority is on the tax ledger only to show their presence. It is in this situation that the FBR launched the voluntary tax scheme last month.
In a statement, it says: “Despite negative criticism and baseless doubts from certain quarters, we have rolled out a scheme that offers positive and practical solutions to traders to become filers. Past attempts to coerce traders into the tax net had failed because of lack of sincere efforts in motivating and persuading them to begin filing tax returns and wealth statements.”
Conditions relaxed
Under this scheme, traders have been exempted from audit, sales tax registration, filing wealth statement and becoming withholding agents – as these were their major demands for enrollment. It also allows the traders to pay a nominal tax on turnover.
The FBR claims that the scheme is voluntary and not for legalising the black money but it is an effort to enhance the population of taxpayers.
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The trick applied for increasing the tax filers is exemption from certain requirements. On the face of it, the trick appears to work. But it would not, in two areas.
One, it will not encourage the traders to reveal their actual income; two, it will not be a welcome trend for improving the tax culture.
The tax money will not increase as the new filers would not be subject to certain conditions that help document their turnovers and incomes. Staying out of the audit net, they would be free to declare any amount of taxable turnover and income. Under-declaration will become the culture with the new filers. The tax culture will be further discouraged as under-declaration would not be the target of investigation.
Privileged class
The only question that remains to be answered is how many traders would be allured to become filers under this scheme?
Even if more than 50,000 opt for it, they would be a unique population of taxpayers, a privileged one, which would not be abiding by most of the tax laws to which others have been subjected to.
By enrolling them, the FBR would be able to claim that it has increased the number of tax filers, but that would not be a potential class of taxpayers. That is why this scheme has been targeted by the regular taxpayers as well as observers and analysts.
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The FBR needs to tell people how it would convert the beneficiaries of this scheme into potential taxpayers that would help in documenting the economy and increasing the tax amount.
Four previous schemes alluring the non-filers did not help the cause of tax compliance culture. The FBR itself says the past schemes were faulty and that coercion drove the efforts in increasing the population of taxpayers. It says the past efforts failed to help document the economy. What is new about the new scheme that can make the difference?
It is the audit and compliance by tax agents that helps document the economy. This scheme appears to be a non-starter. The FBR appears to be playing the same kind of gimmick it has all along been playing to demonstrate performance that is of little help in making the tax culture a reality.
The writer has worked with major newspapers and specialises in the analysis of public finance and geo-economics of terrorism
Published in The Express Tribune, February 29th, 2016.
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