Taxing the salaried class

The government is considering penalising those salaried persons who don’t file their income tax returns by either charging them a higher tax rate or by considering them as part of a higher income bracket for tax purposes. This proposal aims to increase the number of filers to bring them under the tax net. As the FBR runs from pillar to post to increase tax collection and widen the tax net, it appears that it feels the imposition of such measures will help achieve these aims. Its earlier plan of a voluntary tax compliance scheme, in which incentives were offered to the business community, fell flat on its face as few took advantage of the measure with traders having more incentive to remain outside the tax net. The salaried class, however, is more likely to file its returns, something which is legally binding on every citizen with a taxable income of over Rs400,000 a year.

Pakistan clearly does not have a tax-compliant culture. Out of 1.37 million salaried people, only 309,000 file their income tax returns. But these 309,000 also form over 30 per cent of the total return filers. Those who don’t file their returns have various reasons for this non-compliance and these do not necessarily include tax avoidance or evasion. Their income tax is deducted at source when they receive their salaries, so tax avoidance is not really a concern in their case. Many salaried individuals simply don’t file their returns because of the tedious method and the complexities involved in completing this task. The FBR has done little to resolve this issue. Most return filers rely on outside help to file their returns — an extra burden that not many find worth taking on. The argument that the government does not utilise taxpayers’ money efficiently is the final nail in the coffin. The state of public schools, hospitals and infrastructure leaves much to be desired and we can understand why there is so little motivation for salaried individuals to undertake the tedious task of filing their returns. The government was quick to offer traders with incentives to come into the tax net. The least it can do is to be more transparent in its spending patterns to motivate salaried persons, as well as simplifying the highly complex process of filing returns. Simply increasing the burden on the already over-burdened salaried class is not a viable solution.

Published in The Express Tribune, May 7^th, 2016.

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