Will the PML(N) government show the spine and ensure that the law of the land is implemented in letter and in spirit? And, non-filers of income tax returns are charged 0.6 percent on banking transactions of more than Rs 50,000 in a day. Now that it is law of the land – banks will need to comply with.
However, the ground reality is that there are operational problems with the new tax that need to be recognised and time given to banks to put in place systems that are geared for distinguishing a filer from a non-filer – account holder.
There are flaws in the law which requires 0.6 percent to be charged on a transaction of over Rs50,000.
Different banks have different systems – which may be unique. Some have centralised systems. Foreign banks have their servers, situated abroad and may need to line-up in a queue to have the system tweaked to conform to the new law introduced a few weeks ago. They may need some time to have a new system operational. Thus, FBR would be well advised to give them additional time to make the change.
At present, the system installed in banks takes care of cash withdrawals only – wherein 0.3 percent tax is deducted from filers and 0.6 percent from non-filers.
It may be recalled that initially 0.1 percent was levied on cash withdrawals. The aim was to merely get the data (so that the cash based economy could be squeezed), ie, bring non-tax payers into the net. Unfortunately, however, the FBR instead of collating the generated data opted to utilise this measure as a means to generate more revenue in a resource-strapped country by raising only the rate periodically.
What has been the result? Money-in-circulation which used to hover around 22 percent has gone up to over 30 percent. FBR sees the data issued by the State Bank of Pakistan and notices a rapid rise in bank deposits despite this tax. FBR does not discount the over trillion rupees that SBP has injected into the system so that there is liquidity available to settle transactions.
If bank deposits are indeed going up with a concomitant expansion in the size of economy, why would SBP need to administer this massive injection? Under the IMF’s Extended Fund Facility (EFF) Programme the federal government is restrained from borrowing from SBP as this exacerbates inflationary pressures. Instead, SBP creates money so that commercial banks can lend it to the government as it does not have the resources to retire old loans – which banks are happy to roll over with interest to the sovereign borrower, at zero cost, as investment in treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) is repaid to banks on time and also accepted by the central bank towards banks’ Statutory Liquidity Ratio (SLR) requirements. Moreover, these securities can be discounted to raise more cash.
So the Ministry of Finance is always required to see the big picture even if FBR does not. The filer and non-filer discrimination proposal is aimed at widening the tax net. Even if banks do not know whether their account holder is filer or non-filer – the account holder does know if his bank account is declared in his return or not. He is also well aware if he is a filer.
While FBR’s objective is to expand the tax net economy’s objective is to have a more inclusive society by avoiding steps that lead to exclusion. So let us not have Cash Deposit Receipt (CDR) transaction settlement system prevailing in ‘Suttar Mandi’ Faisalabad become the norm in the rest of the country. The protest from “retailers” was expected.
The harassment and insults meted out to honest taxpayers, therefore, encourage non-taxpayers to stay away from the system.
They form core-support of PML(N) among the business community. So the real test whether or not PML(N) can stand up and show the political will is now put to test. In their second stint in power in Islamabad, Nawaz Sharif removed his own appointee – a banker from the private sector – as head to CBR (now FBR) Chairman Moin Khan – after he raided four big retail outlets in Liberty Market of Lahore.
The contribution of both agriculture as well as the retail sector in country’s economy is substantial; however, their share in Pakistan’s tax collection does not reflect this reality. Thus, this is the test of political will to collect tax fairly from those who should be paying.
However, we are afraid that the new proposal aimed at tax widening will once again become a source of revenue generation as data mining will not be on the horizon of our tax hounds. They have plenty of data that is used to fill their pockets and not the exchequer. How ironic and unfortunate it is that we disgrace the taxpayer very often.
The harassment and insults meted out to honest taxpayers, therefore, encourage non-taxpayers to stay away from the system. Let us keep the pressure on for equity – both horizontal and vertical – in our taxation system.
Source: Business Recorder