The pittance paid as income tax


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-Editorial

WEB DESK: Federal Finance Minister Ishaq Dar released the tax returns filed by all parliamentarians for the third year running, generating considerable media and public interest in the amounts paid by Cabinet members, including the Prime Minister, as well as opposition party leaders.

The objective of the exercise has been to name all parliamentarians and, in the event that the tax paid was a lot less than the quality of life publicly enjoyed by any individual parliamentarian, the subsequent shame, through the media, that hopefully would compromise the parliamentarians’ re-election bid.

The Prime Minister paid a total of Rs 2.19 million last year, Rs 415,696 less than the year before, while Imran Khan paid Rs 76,244 in 2015 compared to Rs 218,237 in 2014 showing a decline of Rs 141,993. A prime minister’s expenses are all covered by the taxpayers and the trend to declare personal residence as the prime minister’s house has enabled Nawaz Sharif to earmark large sums of public money for security and maintenance of his personal residence necessitating, one would assume, a lower incoming remittance from his adult sons resident abroad. Needless to add, his predecessors, including Yousuf Raza Gilani and Raja Pervez Ashraf also engaged in such activity.

However, a decline in the tax paid from one year to the next requires a further explanation from a public representative and one can only hope that an explanation would be forthcoming. Imran Khan claimed that the tax he paid as agriculture tax to the government of Punjab has not been included in the total tax he has paid, a tax that is not included in any event in the directory as it contains information of income tax paid to the FBR. A sum of Rs 76,244 as annual income tax implies an income of Rs 100,000 a month and it is incumbent on him to explain the source of his income and at the same time justify the expense involved in his frequent trips to visit his family in London.

The Prime Minister’s brother and Punjab Chief Minister, Shahbaz Sharif, paid more than double his elder brother this year – Rs 7.6 million while his son paid Rs 6.3 million – an amount indicating that the two have considerably more invested in this country relative to the Prime Minister. Ishaq Dar paid Rs 3.9 million – Rs 1.6 million more than last year while the rest of the cabinet paid in lakhs as opposed to millions which given their lifestyle needs to be rationalised.

The linkage between naming and shaming parliamentarians in a country like Pakistan is tenuous at best where intimidation as well as pre- and post-poll rigging remain serious electoral issues and rural votes continue to be largely cast on the basis of biradari with electables forming a major portion of the members of our three national parties. In addition, given that the majority of our parliamentarians – national and provincial – source the bulk of their income from agricultural land which, as per the constitution, is a provincial subject for taxing such income, therefore the actual amount paid as income tax is legally a lot less than tax paid by any salaried individual earning a lower income.

During the tenure of the PPP-led coalition government, Nadra identified 3.5 million people that stood out for their foreign visits, school fees, purchase of luxury cars, monthly electricity bills and gas bills, etc, prompting FBR to send 30,000 notices. However, Riffat Shaheen Qazi, Member Facilitation and Taxpayers Education, FBR, while briefing the Senate Committee on Finance in 2013 acknowledged that only a one-third of the issued notices were received as the rest were non-responsive as the addresses were fake. To deal with this issue, the PML-N administration began to impose a higher withholding tax on services/items obtained by non-filers paying almost double the rate of tax relative to the filers – a tax that by definition is a sales tax.

While this did raise government revenue considerably yet by identifying these withholding taxes as direct taxes the government claimed higher direct tax collections relative to indirect taxes leading to the conclusion that the tax system was becoming more equitable and fair. However, in spite of counting withholding taxes on services/items as direct taxes a Business Recorder exclusive news story that direct taxes have declined from 39.9 percent of total revenue collections to 38.27 percent must be a source of serious concern and requires an explanation from the Federal Board of Revenue and the finance minister.

There has been much debate in the country on tax avoidance, which is a legal loophole available to all taxpayers and its use supported by any qualified tax consultant/chartered accountant focused on saving the total tax paid by his client, and tax evasion which is illegal and punishable under the law. Many of our statutory regulatory orders issued last year refer to tax avoidance schemes openly, however in this context, it is relevant to note that there have been proactive moves by Western tax collection authorities to ensure that tax evasion through setting up offshore companies as well as by depositing their assets in tax havens is no longer tenable.

And while such measures pre-dated the Panama Papers yet subsequently Western countries have begun to debate ways and means to plug these loopholes by making tax avoidance illegal and including the tax/chartered accountants/tax consultants in any punishment/penalty that would be imposed on the client.

The Sharif administration must accept that the global environment is changing with respect to tax avoidance schemes as well and the Pakistani public too is exhibiting marked signs of intolerance at those who engage in tax avoidance schemes. One can only hope that mitigating measures are taken at this point by not only reforming the tax system but also by eliminating all tax avoidance measures in the SROs and making their use punishable under the law.