Pakistan has one of the lowest tax-to-GDP ratios in the region. Out of around 208 million people, only 1.4 million file their tax returns. The widening gap between our expenditures and revenues is the main reason that we keep going back to our friends and international financial institutions for bailout packages.
Developed countries on the other hand have robust taxation system. They tax the rich and spend on the poor to ensure equitable distribution of resources. More importantly, they give incentives to those who file their tax returns.
In Pakistan, successive governments, despite many promises, have failed to address this chronic problem. The Pakistan Muslim League-Nawaz (PML-N) government did introduce measures to enhance the tax base. It offered incentives to tax filers and penalised those who stayed out of the tax net. The move did help achieve some success as the number of people filing tax returns has increased from 0.7 million to 1.4 million during its five-year tenure.
But there is a real possibility of reversal of these gains after the recent move by the Federal Board of Revenue (FBR) to select 1.02 million tax filers for audit.
These cases were automatically selected by the FBR’s online system under Section 214D of the Income Tax Ordinance, 2001, which was deleted through the Finance Act of 2018. Out of 1.02 million, 319,123 audit cases of salaried persons were also selected for filing income tax returns after due date for the period of last three tax years.
Qadeer Tanoli, a jobless journalist, was among the victims who received the FBR notice. Feeling utterly disappointed, Tanoli contacted the FBR helpline and asked under what grounds he was selected for audit since salaried people are exempted from it. Upon inquiry, he was told that since he had filed his tax return late, he had to pay Rs20,000 as penalty for the closure of his case. He was upset to the extent of regretting to become a tax filer, in the first place. He was of the view that he became a tax filer to fulfil his national duty. But he never knew that he would be penalised for being a law-abiding citizen. What was more worrisome is that he has now decided to never file a tax return even if he becomes a billionaire.
This is not just the story of Tanoli but also that of tens of thousands of other tax filers who fulfilled the national obligation in the hope that the state in return would give them some incentives. But the state is doing exactly the opposite. In a country like Pakistan where there is no culture of paying taxes, the FBR should welcome people who file their tax returns even after due date.
The government, nevertheless, justified the decision. Minister of State for Revenue Hammad Azhar said these cases were selected for audit under the previous government’s law on late filing.
“We have introduced a voluntary scheme — revise amount in return upwards by 25% to waive audit. But this won’t apply to salaried persons. They can pay only the late penalty fee of Rs20,000 and get the audit waived,” he said.
After coming under severe criticism, the minister said the government had asked the FBR to come up with proposals to reduce the burden of late filing fee on the salaried group. One Twitter user aptly summed up the situation: “FBR automatically selected for audit 1 million tax payers for filing taxes late. They are now asking Rs20,000 penalty to get rid of audit. The notices span years. Meanwhile, those who have never filed or paid taxes are happy and laughing at all the fools who did!”
The danger is that because of the FBR’s incompetence and its latest folly, many law-abiding citizens would certainly think twice before filing their tax returns.
Published in The Express Tribune, November 26th, 2018.
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