Muhammad Nadeem Bhatti

Pakistan is a country full of less educated people. To perform their duties to make a good society, education is the only power that gives a broad lesson of how to give and how to give up regarding tax compliance.

Although Tax compliance refers to fulfilling all tax obligations as specified by the law freely and completely. Tax compliance means submitting a tax return within the stipulated period, correctly stating income and deductions, paying assessed taxes by due date and paying levied taxes. The tax system of Pakistan continues to under-perform particularly in its ability to raise adequate revenues. The bases of the most important taxes, such as Personal and Corporate Income Tax and the General Sales Tax (GST), continue to be narrow and the level of tax evasion remains high. Moreover, in recent years, the Tax-to-GDP (Gross Domestic Product) ratio has seen a substantial decline. On the other hand, most of the macroeconomic fiscal adjustment in recent years has been on the expenditure side of the budget. Pakistan’s need for spending on social services such as education, health, and capital infrastructure are likely to increase in the near future as governments pursue a strategy of sustained economic growth. Most political manifestos brought forward by political parties spell out major expenditure programmes while expressing a desire to increase tax collection. To reach the desired taxation level in Pakistan, an in-depth policy reforms programme needs to be formulated by policymakers. This will require a detailed analysis of tax structures and tax administration. An attempt has been made in this book to provide the necessary analysis.

The Finance Minister in an interview to Bloomberg stated that to make businesses competitive with regional countries, Prime minister’s administration plans to decrease taxes on energy supply to industries and agriculture and recover the consequent loss in revenue through introducing a wealth tax. A wealth tax is defined as a capital tax or equity tax is a levy on the total value of an individual’s assets, including bank deposits, real estate, assets held in insurance and pension plans, ownership of unincorporated businesses, financial securities, and personal trusts. However in Pakistan, wealth tax until its repeal was also charged on ownership of incorporated businesses. Under Section 116 of the Income Tax Ordinance, 2001, every individual who files a return of income for any tax year is also required to furnish a wealth statement and wealth reconciliation statement for that year along with the return. In 2015, the government increased the disclosure requirements for taxpayers and no longer allowed relaxation from filing for those whose income was less than one million rupees, however earlier this year, the FBR amended the wealth tax form: previously a taxpayer was not required to explicitly state the nature of immovable and moveable property and assets held outside Pakistan including minute details like type of property and complete address the new form required itemization of total wealth. In addition, the recently concluded tax amnesty scheme under which a significant number/amount of undeclared assets have been declared may present an enticing opportunity to levy Wealth Tax. However, before embarking on levying this tax, minister Finance would do well to check the efficacy of this tax when it existed in Pakistan. The highest-ever collection under this head was 8 billion rupees whereas the FBR’s cost in collecting this tax was about a billion rupees. This tax was repealed because it is regressive and militates against savings, industrialization and documentation within the economy. There are only a handful of countries that have retained this tax. India too repealed this tax in 2016. The focus of tax policy should be on taxing incomes in all shapes and forms and not assets/capital formation which is the need of the hour. As it is, Pakistan has had the lowest rate of national savings in the region and levy of this tax would penalize savings. Wealth tax has been rescinded by most countries as a potential source of revenue because it is anti-investment and savings as it taxes assets created out of tax paid funds that is inherently unfair. In a country like Pakistan where the number of non-filers far outpaces the filers there is a danger that the undocumented economy, estimated at over 50 percent of the national economy, may simply rise. One option to make the rich pay more would be to impose a super tax on the rich and in the budget for fiscal year 2016-17 India replaced the wealth tax with an additional surcharge of 2 percent on the super rich. Pakistan also levies a super tax on all those with an income of 500 million rupees or more annually. Good tax management starts with good record keeping, especially financial records. It is needed to make sure the financial staff is trained in accounting such as classification and recording of monetary transactions and compilation of statements.

After doing the work of day and night the FBR has been succeeded to receive data of non-taxpayers across the country which will be used to broaden the tax net. President Tax Bar Association Munim Sultan is playing vital role to bring the people in tax net and willing to offer good awareness about tax system, In this regard a seminar was organised in tax house Lahore presided by by Madam Nosheen Javed Amjad member IR (Inland Revenue) who has given the valuable answers to embossing new clauses of tax (like article 214-E) and Chief Commissioner Asim Majeed Khan ( large tax unit) given the statement to make sure the best privilege of taxpayers during their services and Chief Commissioner Syed Nadeem Rizvi is fully attentive to broaden the tax net and numbers of taxpayers in the FBR history.

Although FBR has received detail of at least 748,541 of non-taxpayers from the motor vehicle branches across the country. They are non-taxpayers registered with vehicle above 1300CC while they are not paying any taxes. Meanwhile K-Electric also provided details of 441,000 non-taxpayers, Faisalabad Electric Supply Company provided at least 334,000 of non-taxpayers data and Gujranwala Electric Supply Company provided data of almost 228,000 of non-taxpayers. On the other hand, Sui Northern Gas Pipe Lines provided 2,323 of consumers’ data who have commercial connections while property departments across the country have provided data of 484,000 non-taxpayers to FBR.

FBR is making concerted efforts to broaden the tax net base and several initiatives have been taken in the recent past to increase the number of return filers while FBR has formulated a strategy to go after the tax-evaders by using information obtained from their transactions in the real estate sector.  During the raid on any project, govt must ensure law and order situation and should not misbehave with those who are going to be the future taxpayers.