Evaders to remain out of net till tax machinery gets fixed
LAHORE: The failures in documentation have more to do with the attitude of the tax machinery than all other factors. The system has been designed in a way to loot some with double taxation and spare those who pay no taxes.
Take for instance the withholding tax collected on electricity, gas and telecommunication services from all consumers. The idea behind this move was to gather taxes from tax evaders and refund or adjust these withholding taxes to the tax filers. This rule has been brutally abused.
The non-compliant segment of the population has no issue in paying these withholding taxes, but the tax filers do not get this refund even if they apply for it. There are a few firms that adjust these taxes before making final tax payment. This is particularly true for the salaried class or individual service providers.
The employers deduct monthly income tax installment from the salaries. Similarly, the service tax of the service provider is deducted by the firm to whom the service is provided before making the payment of that service. Both these taxpayers have to file a tax return at the end of the year.
They provide the copies of the utility bills they paid in that fiscal year. They also submit the tax certificates provided by the service providers like PTCL, mobile phone operators and the broadband facility providers.
These certificates mention the amount of withholding tax deducted from the filer during the fiscal year. This amount varies from Rs5,000 to Rs15,000 in a year for middle class executives. Most of them do not apply for refund that is their right.
However, even those that ask for refund get nothing even after waiting for years. This thus becomes double taxation for them.
Registered industrial units and tax compliant companies submit the exemption certificate from the Federal Board of Revenue (FBR) to the utilities and government departments that do not deduct any withholding tax from them. But individuals remain at the receiving end.
Those who pay no taxes at all then get the cue from the FBR behaviour that refunds would be impossible even if they register in the tax net. The withholding amount deducted on utility bills and services is included in the total income tax collected by FBR in a fiscal year.
This means that by denying refunds to the small taxpayers, the FBR is overstating the income tax collection. There is a need to correct this flaw in the tax regime.
Another point worth noting is the reluctance of the FBR to bring non-filers into the tax net, although it has documented proof of their tax deduction from utility bills.
There should be a reason for this let up, as the tax collectors grill the taxpayers harshly while scrutinising their tax returns. The motive behind giving way to non-filers seems to be graft.
The documentation of economy would remain a pipe dream until the tax collectors are taken to task for letting tax evaders go. Each tax official operates in a specific region.
It is the duty of the official to ensure that all commercial entities and high spending individuals in his/her area pay their due taxes. All tax officials that fail to do so must be censured.
The Minister of State for Revenue stated a moth back that a high percentage of shops in the posh markets of Islamabad are not tax registered. This tax avoidance is not restricted to Islamabad but is spread in all big markets in the country.
This fact is also known to tax officials. Why have they not taken any action? Why have they not been censored?
It is worth noting that the fear of tax compliance has been spread with purpose. The ordinary shopkeepers may not be paying taxes, but they grease the palms of tax officials to stay out of the tax net.
It has been observed that tax officials demand bribe from even registered taxpayers. The honest taxpayers refuse.
Tax audit is often conducted of most honest taxpayers. In most cases, their tax amount is overly enhanced.
These dedicated taxpayers go for appeal instead of paying bribes to the tax officials. They undergo hardship of years in appeals before finally succeeding in their stand vindicated by superior courts.
Officials who had generated the additional tax go scot free and in many cases get promoted, while the ordeal of honest taxpayers at the hands of corrupt officials tells tax evaders to remain out of the tax net and continue greasing the palms of corrupt FBR officials.