Business unusual

Published November 24, 2022
The writer is a former civil servant.
The writer is a former civil servant.

‘CAMOUFLAGE’ is defined as the disguising of a military’s personnel, equipment and installations by painting or covering them to make them blend in with their surroundings. In Pakistan, the involvement of the security establishment in politics and commercial activities can be termed as a variant of this term — in a perceptual rather than a physical sense.

For instance, its presence is evident in the real estate business, eg, the DHAs. FWO, Fauji Foundation and similar entities are used for commercial activities, ranging from construction to food.

A recent judgement of the Islamabad High Court in the Margalla Hills case stated: “The Pakistan Army has no power nor jurisdiction to, directly or indirectly, engage in business ventures of any nature outside its composition, nor to claim the ownership of state land.” It is often felt though that association with the establishment in some way is the only viable option to carry out large business activity.

However, the purpose of this article is not to explore those ventures as there are already books on the subject. The purpose here is to encourage wealth generation by truly providing ease of business to non-privileged enterprises as well. While mega businesses that have the patronage of powerful quarters get tax breaks, ordinary entrepreneurs are grilled and harassed by the FBR endlessly. It is a general perception among small- to medium-sized enterprises — especially family-managed businesses — that by filing a genuine tax return one is very likely to have signed away one’s peace of mind. Perhaps, this valid perception of taxpayers has resulted in the drastic fall in the number of tax returns filed this year.

Tax officials are oblivious to the ground realities.

If there is a small- to medium sized business operating without filing tax returns, then FBR officials will have to work very hard — which they despise — to create a tax liability against it. But for a business that files tax returns, all they have to do is issue a show-cause notice asking for details like account statements, ledgers, CNIC of contractual labourers, even if they worked for the business long ago, details of expenses made years ago and receipts of even petty expenses. Obviously, no small- to medium-sized enterprise has such data unless they focus solely on maintaining these details rather than their core business. This leaves them at the mercy of tax officials, who can pass an order terming any amount as tax liability, thus leaving no option but to comply with the official demand or agree to an underhand deal — a win-win for the tax officer in both cases as it would either meet his official target or add to his personal wealth.

On the other hand, a business which does not file tax returns can operate under the radar and even if it gets noticed, it can conveniently adjust its response as per the questions and concerns raised by the officials. Additionally, it can make better use of tax amnesties announced from time to time.

Tax officials are civil servants who are oblivious to the ground realities of business in Pakistan, and given the mindset of our civil servants, they couldn’t care less. Budding businesses become happy hunting grounds for unscrupulous officials as well guinea pigs for the honest ones; they try to exert their authority on them without fear of backlash, which is not a possibility in the case of big businesses with powerful patrons. A country of 230 million disincentivising small businesses in every possible way cannot be serious about poverty alleviation.

As per the prevailing policies, withholding tax comprises two-thirds of all income tax. And, as per available data, around 95 per cent of the income tax collected by the FBR is via withholding tax. A performance audit of FBR would reveal how much tax is collected by the staff and how much is deducted at source by withholding agents, by retailers as sales tax and by importers on invoices generated at points of origin.

Lastly, for existing filers already paying tax above a certain threshold, the role of FBR officials should be eliminated altogether and replaced with software focused on harnessing the data of taxpayers instead of harassment of taxpayers.

Officials should prepare cases for new taxpayers to become filers backed by data based on their standard of living and banking records; even for that they should adopt a model of encouragement for compliance rather than criminalise those who have been overlooking such an undertaking due to various complexities of the system as well as the tax culture. Such a model would generate more wealth, more employment, more entrepreneurs, and less corruption. We have tried the business-as-usual approach without much success; let us try to be more innovative and adopt a ‘business unusual’ model.

The writer is a former civil servant.

syedsaadatwrites@gmail.com

Twitter: @SyedSaadat55

Published in Dawn, November 24th, 2022

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