You may like to think you are not a taxpayer but from luxuries down to basic supplies, you are paying taxes all the way. Whether you are a filer or non-filer, you are shelling out money for big brother every single day. Most of the tax today is deducted when you spend your income, not when you file your tax return at year end. You are basically paying as you spend. When you buy motor vehicle, you pay advance tax. When you buy real estate, you pay Capital Value Tax. When you buy cellphone airtime, you pay withholding tax and sales tax. When you eat at a restaurant, you pay sales tax. When you withdraw cash from your bank account, you pay withholding tax. When you use electricity, you pay advance tax. The list goes on but you get the idea. Those who do file tax returns at the end of the financial year claim adjustments for these amounts to reflect their actual tax liability. Those who don’t file are still paying taxes. There is no escape. What’s even worse is that many people who are not even liable to taxes are paying taxes because they don’t know how to claim adjustments as a filer. So one way or another, everyone is a tax payer.

Delving deeper into source taxes, the form of tax that we come across a lot is sales tax (GST). Sales tax is a form of luxury tax. It is paid by people who are affluent and make purchases that are classed as luxury. If followed in its true spirit, the rich business man should fork up more money for the kitty than the worker who struggles to put a decent meal on his table. This is why in sales tax parlors, basic food items such as wheat and rice are not taxable whereas food served at restaurants is. In case you haven’t noticed, even a bottle of mineral water becomes chargeable to sales tax when you buy it from a restaurant instead of superstore. 

However, some of these sales taxes are simply income taxes dressed as sales tax. Why do I say that? Take the example of cellular services. Would you classify cellular services as necessity or luxury? While there is no cut-and-dried perfect answer, cell phones have come a long way from being a luxury. They are an absolute necessity today. It is impossible to imagine life without cell phones. I mean who doesn’t have a cell phone these days? Everyone and their dog has at least a basic phone if not a smartphone. Your babysitter has it. Your milkman has it. And let’s not forget your driver. Staying connected is a pressing need today. But what’s strange is that the individual who earns a dime and the billionaire both pay the same amount in the way of sales tax. For pre-paid users, this tax is deducted every time the phone is topped-up with airtime. If sales tax is essentially a luxury tax, doesn’t taxing the rich and poor alike defeat the purpose? Anyway, I’m not here to appeal to your sense of fair play. What I’m really trying to say is that even luxury tax is not really a tax on luxuries. Technically, it’s income tax masquerading as sales tax. Because who in their right mind would call cellphone use a luxury?

Coming to withholding tax, this tax is deducted at source and submitted to the government. This is the part of tax you pay before the end of financial year. It is paid when you earn income or when you spend it. You pay it with your electricity bill, your cell phone talk time, and various other utilities. However, I will only focus on cellular use only. According to the PTA website, there 133 million cellular subscribers in Pakistan. In a country with a population of 182 million, 133 million is an overwhelming majority. People who are even below poverty line are using cell phones. With 19.5% sales tax and 14% withholding tax, imagine the amount that goes to the national exchequer even when very few citizens are filing returns.

But truth be told, all this combined doesn’t even come close to the amount government can raise if all business tycoons paid what they owe. The value of assets declared under the recent tax amnesty scheme is a good indicator of the amount of tax that has been evaded by Pakistanis. Under the recent amnesty scheme, assets of Rs. 120 billion were declared. The source of these assets is still unknown. But that’s not the point. The point is that very few Pakistanis are filing tax returns. And among those who file, some manage to avoid the tax net altogether while others under-report their income. According to the Active Tax Payer list issued by FBR in 2015 (updated to July 10, 2016), a little over one million people paid taxes which is a paltry 1 percent.

Nevertheless, if FBR were to include all informal channels of tax collection in taxpayer count, the number of taxpayers would go through the roof. 

In a bid to penalize non-filers, a higher rate of withholding tax is now levied on non-filers. This allows the government to chuck most of the non-filers into tax net. The widening gap of withholding tax between filers and non-filers has allowed the government to raise proportionately higher revenue from non-filers. Despite the lean numbers in formal tax parlors, the informal tax base is expanding. Most of your income is now taxed as you spend and the amount of tax is even higher if you are not filing your tax returns.