The bosses of Federal Board of Revenue (FBR) are jubilant over growth in revenue collection. A statement on the FBR’s website says that net collection of Rs1302 billion in the first five months of the current fiscal year (showing growth of 19.55 per cent) is satisfactory -- target of Rs1363 billion was missed by Rs61 billion is ignored as usual.

There is also no breakup of collection that is mainly through heavy taxation of petroleum products, regulatory duty, huge income tax advances and withheld amounts that still are to be adjusted against the actual liabilities. Nor there is any mention of long overdue refunds of billions of rupees. This is the abhorrent accounting of Dar’s era that is still continuing despite the fact that now his portfolio is with Prime Minister Shahid Khaqan Abbasi.

It is also claimed by the FBR that there is "substantial growth" in the number of return filers -- it is claimed that till November 30, 2017 total returns filed were 991,187 compared to 746,022 returns received in the same period in 2016. The following facts, extracted from Tax Directory 2016, expose the efficiency of the FBR: 

Companies & Association of Persons (AOPs)

There were 73,207 companies registered with Securities & Exchange Commission of Pakistan (SECP) as on 30-06-2016 but only 31,364 filed returns though law requires mandatory filing of return by every company.

Total returns filed by AOPs were 48,364.

41 per cent companies paid NIL tax.

Cumulatively 81.85 per cent paid less than Rs1,00,001 as tax.

Cumulatively 764 entities paid Rs25 million or more as tax.

Only 66 entities paid Rs1 billion or more as tax.

300 entities (companies/AOPs) paid about 69 per cent of the total taxes paid by all companies and AOPs.

10 top companies/AOPs contributed about 53 per cent of total tax paid by these two categories.

Individuals

Total returns: 1,136,886.

29.3 per cent paid NIL tax.

Cumulatively 62.69 per cent paid less than Rs20,001 as tax.

Cumulatively 82.35 per cent paid less than Rs100,001 as tax.

Only 2,455 individuals paid more than Rs10,000,001 as tax.

It is an irrefutable fact that about 10 per cent of the country’s workforce, approximately 6.5 million, earns taxable income of Rs400,000 or above. According to a report of Groupe Speciale Mobile (GSMA), there were 90 million unique mobile users in 2016 who paid 14 per cent [rate from July 1, 2017 is 12.5 per cent] advance adjustable income tax but only less than about 1.5 per cent of them filed income tax returns.

According to the FBR’s own admission, it received only 991,187 returns till November 30, 2017. An earlier disclosure showed that return filers in 2016 were 1.1 million. It is pertinent to mention that in 2011 this number was 1,443,414. Jorge Martinez-Vazquez and Musharraf Rasool Cyan in their book, The Role of Taxation in Pakistan’s Revival, mentioned at page 676 [Figure 36] that 2.1 million Pakistanis (individuals) filed income tax returns in 2006-07. This shows that FBR has lost one million return-filers in the last 10 years despite prescribing higher withholding tax rates for non-filers.

Every year, even after giving number of extensions in the last date for filing of returns, the compliance is wavering. This confirms dwindling efficacy of the FBR -- it must conduct a study to find out what has gone wrong after penalising non-filers who are happy to pay more by way of advance tax than to file returns!

Majority of the mobile users do not have taxable income, hence, are not legally required to file tax returns. If they do so only to claim the withheld tax, they fear becoming victims of the FBR officials’ excesses and exploitation at the hands of unscrupulous tax advisers. In any case the cost to reclaim such amount would be much higher. It is an established fact that majority of the ultra-rich do not bother to file tax returns -- they are happy with withholding provisions as these take away only a fraction of their mammoth incomes. This confirms beyond any doubt the ineffectiveness and incompetence of the FBR. Our real dilemma is that the rich and mighty are not paying taxes according to their ability. In 2016, only 2,455 individuals paid tax exceeding Rs10,000,001.

As per provisional results of 6th population and housing census-2017, total population is now 207,774,520. Out of total population, 60 per cent are in the age group of 20-24 years and 60 million are below the age of 15 (they are dependents). 30 million are chronic poor earning less than two dollars a day.

Our labour force, tenth largest in the world, is around 65 million, out of which 56.5 million are employed. Rural labour force of 55.5 million is earning below taxable income or agricultural income falling outside the ambit of Income Tax Ordinance, 2001. Reading all these facts together, the total persons liable to income tax cannot be more than 10 million whereas the FBR is extorting income tax at source from over 90 million active mobile users alone!

At present the entire taxable population and even those having below taxable incomes are paying income tax at source, yet the FBR is engaged in a vicious propaganda that people of Pakistan are tax cheats and that our tax base is narrow! This is highly lamentable on the part of the FBR especially when all traders using commercial electricity connections are paying advance income tax under section 235 of the Income Tax Ordinance, 2001.

Why the FBR wants tax returns from even those who have no taxable income? This is against the supreme law of the land -- Article 4(c) of the Constitution which says:   "no person shall be compelled to do that which the law does not require him to do". More "filers" means more "speed money", more earnings for unscrupulous tax advisers -- majority comprising lower staff and even some high-ranking officers of the FBR.

In Pakistan, the ultra-rich are avoiding tax obligations but millions having no income or incomes below taxable limit have been forced to pay advance tax. It is gross violation of their fundamental rights. Why should poor people engage a tax adviser to file return and pay money to get some refund? The extreme injustice in tax system demands a widow to pay 10 per cent non-adjustable withholding tax on her income of Rs300,000 [taxable limit is Rs400,000] from an investment made with national savings centre, from the funds she had probably received from pension/gratuity funds on the death of her husband. From the same source, a rich person pays only 10 per cent tax on income of Rs2 million, whereas he should be taxed in the highest slab of 35 per cent. Over 75 per cent taxes collected by the federal and provincial governments are indirect in nature, the burden of which is borne by the poor and middle-class with scanty resources and no ownership of assets.

The FBR owes an open apology to the people of Pakistan for criminal negligence in reporting incorrect figures regarding income taxpayers in Pakistan. Out of total income tax collection during 2016-17, the percentage of withholding taxes and voluntary payment is 90 per cent. It proves beyond any doubt that blame shifted on business houses, especially SMEs, for the alleged non-payment of taxes is just an eyewash.

The crumbling, inefficient and corrupt tax apparatus is the root cause of the present scenario. Tax officials persistently squeeze and penalise existing taxpayers on the one hand but on the other, join hands with and protect big tax evaders -- massive over and under invoicing is not possible without their connivance. The small business houses, already heavily taxed through withholding tax mechanism, are victims of their highhandedness. It is high time that FBR should put its own house in order and stop malicious propaganda against the people in general and business community in particular.

It is the FBR’s failure to enforce provisions relating to filing of returns by people having taxable income, for which it cannot blame the public at large. Are the people of Pakistan responsible for this pathetic performance? The responsible officials of the FBR should be taken to task for this gloomy state of affairs. It is high time that the FBR should put its own house in order and enforce tax laws across the board rather than blaming the already over-taxed people of Pakistan for its own managerial fiascoes and established record of protecting the rich and mighty. It must be remembered by all that non-collection of tax where due is as detestable as its collection, where it is not due.