New tax bill spares majority: FBR chief
Pakistan's tax chief said on Tuesday that 95% households would not be affected by the proposed legislation to ban economic transactions of "ineligible" people and businesses rather these measures would help increase tax collection by another Rs5 trillion in five years.
Pakistan is a poor country and 90 to 95% people do not fall in the tax ambit, said Rashid Langrial, the chairman of the Federal Board of Revenue (FBR), while briefing the Senate Standing Committee on Finance on the new tax bill.
Finance Minister Muhammad Aurangzeb also admitted that people were not having trust in the FBR. "Restoring credibility and trust of the taxpayers with the tax authority is critical, as people come to me and say that they would pay more money but will not come in the tax net," he said.
No treasury member attended the meeting and proceedings were held thanks to the presence of two legislators of the Pakistan Tehreek-e-Insaf (PTI) – Senator Shibli Faraz and Senator Mohsin Aziz. The Pakistan Peoples Party's (PPP) Senator Saleem Mandviwalla chaired the meeting.
FBR Chairman Rashid Langrial, while responding to a question raised by the Leader of the Opposition in the Senate, Senator Shibli Faraz, told the committee that 95% households would not be affected by the new legislation.
In four to five years, he added, these enforcement and regulation measures would help the FBR collect additional Rs5 trillion. Langrial said that as against the current level of 10%, the FBR's tax-to-GDP ratio potential was 14%.
The government last week introduced the Tax Laws Amendment Bill 2024 in the National Assembly to ban purchase of cars, properties or own bank accounts by ineligible persons. The bill also seeks the powers to freeze bank accounts and confiscate businesses and properties of sales tax unregistered persons.
The ineligible persons would also not be allowed to withdraw cash from their bank accounts, beyond a certain limit, according to the proposal. An eligible person, on the other had, could make major purchases up to 130% of value of cash and assets that he declared in his last tax return and the wealth statement.
The finance minister could not give a satisfactory reply to the committee when asked about what was different from the past that the government would be able to expand the tax base after the new legislation.
"As a country our hands are forced," Aurangzeb said. However, despite these difficult circumstances, the government failed to achieve targets set under the 'Tajir Dost Scheme'.
The FBR has already got the authority to disconnect electricity and gas connections of the non-compliant people and ban their foreign travels. These powers, however, have not been yet exercised.
There were only 62,000 sales tax registered persons in Pakistan and out of them only 42,000 were active, the FBR chairman said. "Even those who are part of the system do not pay their full taxes."
Pakistan's existing sales tax system encourages and facilitates people to remain outside the net, as it is not legally binding for the businesses having Rs10 million sales in a tax year or Rs100 million in a fiscal year to get registered with the FBR.
The government has not abolished this clause from the law and instead sought the National Assembly's permission to authorise the FBR to change the limit.
The higher the sales tax rate, the higher are the chances for cheating the tax system, said Minister of State for Finance Ali Pervaiz Malik. The current standard GST rate ranges from 18 to 25%, excluding the impact of further sales tax and the extra tax.
The FBR chairman said that the technological interventions could help in the issue of corruption in the FBR.
After the FBR introduced a face-less appraisal system, within one week, the calls to importers for submitting additional documents decreased from 2,000 to mere 200 in one week, the FBR chairman said. He added that those calls were not made in the past for documents rather for "dacoitting" people.
From the point of sale to imposing taxes on electricity bills and introduction of the Tajir Dost Scheme, the government had tried everything but it had failed, said Senator Mohsin Aziz. He added that 5 to 7 million people would be affected by the government's new legislation.
The government has not abolished the non-filer category from the law nor did it delete the 10th schedule of the Income Tax Ordinance that carried higher rates for the non-filers.
Instead, the government introduced a new category of eligible person, who would be entitled to make big purchases. The eligible person would be the one "who has filed a return of income tax for the tax year immediately preceding the year of transaction and has sufficient resources in wealth statement in case of an individual or financial statement in case of a company or association of persons.
The proposal to give authority to the commissioner to determine the input tax claim of a business was a very harsh measure, which would open another avenue for bribes, said Senator Mohsin Aziz of the PTI. But Langrial said that the businesses massively lied about their input tax claims.
"Input tax cannot be averaged out due to different kinds of inputs being used by even one specific sector," said Mandviwalla.
The government has also proposed hiring private auditors for performing the functions of the audit of the taxpayers. The members were of the view that it would open another shop for setting audit cases through illegal means.
The finance minister said that the new legislation would improve compliance and help take due taxes on consumption and income.
The committee members objected to bringing the bill as Money Bill despite there was no alternation in the tax rates. Law Secretary Raja Naeem certified that the bill fell in the category of the Money Bill, as it would regulate the existing taxes. In case of Money Bill, the Senate does not have the authority to veto a bill and its legal mandate is only limited to giving recommendation.