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SOMETHING interesting is happening. For a few years now, in a steady endeavour to increase the revenues of the state, the government of Pakistan has been involved in a slowly accelerating effort to build new tax bases and bring more individuals and people into the tax net. And along the way, a very interesting series of battles have begun to be fought.
These days, for better or for worse, the federal and provincial governments have ramped up their revenue collection efforts, and are entering into terrain where people have been carrying on their business unfettered by the tax collector for decades.
Take the example of the withholding tax on non-filers that was passed in the recent budget. The tax amounted to 0.6pc of those transactions that totalled more than Rs50,000 in a single day conducted by someone who is a non-filer of their returns. And as this column is being written, markets in Karachi and across Punjab are shut in a traders’ protest against it.
What is interesting to note is the type of arguments that have been brought against this measure. One of the traders’ leaders, for example, says he has written a letter to the COAS asking him to intervene and take action “against all corrupt elements” as a response to this tax. Chaudhry Sarwar described the measure as a “drone attack” against the economy. In other places, it is being termed cruel, vicious and contrary to the economic interests of the country.
The vision and intent behind the massive exercise to restructure the federation through the NFC award and the 18th Amendment is now gathering pace.
But ask yourself a simple question: why are traders the only ones organising protests against this measure? Why are other chambers of commerce quiet about it? And you’ll get your answer. The measure is hitting traders the hardest because they transact large amounts of money through personal bank accounts and they don’t file their returns.
In addition, scan the letters section of the newspapers and you’ll see myriad complaints coming in from various individuals. One person complains that he is a salaried person and his tax is deducted at source by the employer so he is in fact paying his taxes and therefore his transactions should not be subject to this tax. True, but then all this person has to do to avoid this tax is to file his returns, and since his tax is already deducted there won’t be anything additional to pay.
A pensioner complains that his pension is being deducted and it is unfair to expect him to file since he is below the threshold where returns have to be filed. True, but then if this person is regularly transacting more than Rs50,000 per day, which is the threshold at which the tax is activated, then it suggests that his income is in fact larger than what he is claiming.
Then there is the example of the fashion designers from Lahore, who have had notices served on them to come and register with the Punjab Revenue Authority (PRA), and some outlets sealed for failure to do so. One fellow from the community of fashion designers is quoted as saying “my workers are so poor I have to pay them weekly so they can meet their expenses”.
Hiding behind the poverty of your workers when the taxman comes around is pathetic. If those workers are poor, perhaps the designer in question should pay them more. We all know the extremely exploitative relationships fashion designers keep their workers in. We also know their preference for dealing in cash, which isn’t for ease of doing business I’m sure. Ask your designer for an invoice, and insist on paying by pay order next time you buy a bridal and see what happens.
What is happening in this country is that a broad push to broaden the tax base is under way. In pursuit of this goal, the provincial governments are ramping up their efforts to register service providers located in their jurisdictions, and are preparing to collect their fair share of sales tax on services, which is part of the provincial domain.
Each province is controlled by a separate political party — the PPP in Sindh, the PTI in KP and the PML-N in Punjab — and each of them is undertaking this effort, so this isn’t political in the sense that one party is not pushing the whole process.
In a sense, the vision and intent behind the massive exercise to restructure the federation through the NFC award and the 18th Amendment is now gathering pace, and in the course of doing so, is disrupting comfort zones long enjoyed by parties that never imagined that they would one day be facing the taxman’s net.
There are loose ends to straighten out, no doubt. For example, one big problem that had been flagged early in the process was the confusion that would arise when taxing those services that originate in one province and terminate in another. Take mobile calls, for example, that may originate in Karachi and terminate in Lahore. Which province would have the right to collect the sales tax on this call?
Similar problems arose in banking and insurance. But they were worked out by agreement in each industry. Now they are coming up again as the revenue effort moves into the next tier of service industries. And once again, they will need to be settled through administrative means.
But the interesting part of the picture is the kind of arguments that are being raised as feathers get ruffled. There are those who don’t understand that a simple step can save them the trouble they are complaining about, and there are those who simply don’t want to pay out of habit or a sense of entitlement that they have developed over the years. Tackling these perceptions will be crucial, and it is helpful indeed that political parties have not jumped on board to try and harness this worthless angst that’s swilling as the status quo gets disturbed.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, September 10th, 2015
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