The government has decided to abolish non-filers from the tax laws and gradually ban their 15 types of activities, as it has won rare support from Pakistan's top industrialists for getting more revenues from existing filers and punishing non-compliant citizens—Government to go all-out against non-filers, The Express Tribune, September 25, 2024
The government is set to introduce a raft of measures to address the concerns of individuals not required to file tax returns, such as housewives, people with an annual income below Rs600,000, and overseas Pakistanis…Under the proposed system, a new definition of family will be introduced into income tax law. A wife, a son under the age of 25, and an unmarried daughter will be allowed to benefit from the filing status of a husband or father—A new category for families to reduce the tax filing burden, The Dawn, September 26, 2024
The newspapers, as well as electronic and social media, for the last few days, have been debating the (purported) decision of the incumbent government to finally end the undesirable category of “non-filers” from the Income Tax, Ordinance, 2001. It needs to be recalled that it was introduced through the Finance Act, 2014, prepared under the command of the self-acclaimed economic wizard (sic) of Pakistan Muslim League (Nawaz), Muhammad Ishaq Dar, presently 4th Deputy Prime Minister and 39th Foreign Minister of Islamic Republic of Pakistan. He is also the Leader of the House in the Senate of Pakistan.
The “non-filer” innovation (sic) under Daronomics (a renowned author, former State Bank of Pakistan governor, economist, and an advisor to the Prime Minister in the government of Pakistan Tehreek-i-Insaf, Dr Ishrat Hussain, coined this term to describe the complicated connection between economic and political affairs in Pakistan) was aimed at broadening the tax base. However, in the last 10 years it has proved to be a revenue-yielding measure for the infamous apex revenue authority of Pakistan, the Federal Board of Revenue (FBR), known for its highhandedness and collecting over 90% of taxes through withholdings.
The FBR cannot repudiate the fact that with effect from July 1, 2024, the entire taxable population and even those having no income or income below the taxable limit are paying advance and adjustable 15% income tax as filers and 75% as non-filers, being prepaid or postpaid mobile/broadband users
It is an incontrovertible fact that not less than 100 million Pakistanis as mobile users and by nearly 70 types of withholding taxes imposed under the Income Tax Ordinance, 2001, both adjustable and non-adjustable, paid advance income tax during the fiscal year 2022-23, but only a fraction of them (about 1.5% filed income tax returns showing some taxable income). The term “taxpayer” as defined in section 2(66), not filing income tax returns, categorised as “non-filer”, and not appearing on FBR’s Active Taxpayers List (ATL), are dealt under section 100BA of the Income Tax Ordinance, 2001.
The performance of the FBR in enforcing the law [section 114 of the Income Tax Ordinance, 2001] requiring all persons having taxable income to file income tax returns is pathetic! It is evident from the fact that about 120 million citizens paid advance adjustable income of 15% as mobile users—both prepaid and post-paid—during the fiscal year (FY) 2022-23, but the active individual taxpayers (who filed returns for tax year 2023) as per FBR’s website (the list is updated on every Monday) was 3,886,709 as on September 23, 2024. Nearly seventy percent of the “filers” (sic), showed NIL income or below the taxable limit, just to avoid a higher rate of withholding tax applicable to non-filers! The total number of return filers as per the latest update on the ATL by FBR was 5,670,447.
According to the Pakistan Telecommunication Authority (PTA), the total cellular/broadband subscribers as of June 30, 2024, were 193 million (79.44% mobile density), 135 million mobile broadband subscribers (55.61% mobile broadband penetration), 3 million fixed telephone subscribers (1.06 teledensity) and 138 million broadband subscribers (57.05% broadband penetration).
The latest figures available for August 31, 2024 show: total cellular/broadband subscribers 193 million (79.41% mobile density), 138 million mobile broadband subscribers (56.72% mobile broadband penetration), 3 million fixed telephone subscribers (1.06 teledensity), and 142 million broadband subscribers (53.19% broadband penetration).
Admittedly, out of 120 million unique mobile users who paid advance/adjustable income tax during the FY 2022-23, 100 million had no income or income below the taxable limit! FBR failed to register all taxable individual—their number cannot be less than 20 million based on available data for FY 2022-23 with telecoms about their handsets, traveling history quantum of bills, etc. Had FBR done this, the monstrous tax gap in income tax filers could have been bridged, eliminating the self-created category of “non-filers”! Thus, registering the entire taxable population and making them return filers was, in fact, deliberately avoided by the FBR to retain a justification for extorting 75% oppressive advance income tax from the poorest of the poor mobile users having no taxable income.
The FBR cannot repudiate the fact that with effect from July 1, 2024, the entire taxable population and even those having no income or income below the taxable limit are paying advance and adjustable 15% income tax as filers and 75% as non-filers, being prepaid or postpaid mobile/broadband users. In the face of this undeniable factual position, under what logic, the FBR and others part of their bandwagon are labeling Pakistanis as tax cheats?
The persistent negative and malicious propaganda by the FBR of a “low tax base”, and media campaigns by certain entities, funded by foreign governments and non-governmental organisations (NGOs) that only one percent of the Pakistani population pays income tax are highly deplorable. Obviously, they knowingly ignore the distinction between ‘payers’ and ‘filers’.
Lamentable malicious propaganda campaigns against millions of Pakistanis who pay advance income tax though not liable to tax must stop. They are contributing to national kitty though law does not require them to do so. Withholding provisions are unconstitutional in the case of those who are not earning taxable income. Since our rulers and tax bureaucrats (Revenuecracy) wage baseless and unfounded campaigns and spread the false impression that “our tax base is extremely narrow”, institutions like International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB), and UK Foreign, Commonwealth & Development Office (FCDO), etc join the bandwagon promoting this narrative in utter disregard of facts that are quite the opposite.
Millions of Pakistanis, not earning taxable income, pay advance income tax. They are not required to file income tax returns, but stalwarts sitting in FBR and their political masters want them to do so. In other words, they are being compelled to be exploited by unscrupulous officials and tax advisers! This is a blatant violation of Article 4(c) of the Constitution of Islamic Republic of Pakistan (the Constitution), which says: no person shall be compelled to do what the law does not require him to do.
Our successive governments, civilian and military alike, conveniently picked on the poorest of the poor to quench their thirst for more and more tax revenues! They never seriously cracked down on big tax evaders, compelling corporate bodies, parliamentarians, judges, and military high-ups to discharge their tax obligations as per law—they were rather offered tax concessions, waivers, and amnesties. FBR also never showed interest in bridging the obnoxious tax gap of billions by registering all business houses, checking leakages, and rampant corruption within their ranks.
It is simply shameful that the FBR instead of admitting its failure to enforce provisions relating to filing of returns by people having taxable income has once again opted to penalise those having no taxable income and the public at large, who are already victims of onerous, obnoxious, enormous and cumbersome withholding tax provisions.
The incumbent government like its predecessors is not inclined to cut corners in its monstrous size and mammoth expenditure and incentivise economic growth. What kind of government strips its needy of the luxury of its officials? What kind of laws are being thrust upon people where they are made to do what the Constitution does not require them to do? When the Income Tax Ordinance, 2001 does not legally bind them to file a return of income, then why do government officials insist that they do so in order to claim a refund which to obtain, by the way, is next to impossible?
Those intending to make amendments in tax laws to strip citizens from buying property, opening bank accounts, investing in legitimate instruments, traveling abroad, etc, must study such attempts made through the Finance Act, 2018, barring the non-filers, residents as well as non-residents, to buy immovable property exceeding Rs. 5 million. It was not only anti-business but also unconstitutional. The National Assembly by passing this law acted as a rubber stamp. It did not bother to check whether it could impose such a condition that is directly in violation of Articles 4, 23, 25, and 142 of the Constitution. Any law violating the fundamental rights of citizens is void ab initio, even if the Legislature has the power to enact the same.
As regards the acquisition of property by any citizen, the Constitution gives inalienable fundamental rights that were violated in the Finance Act, of 2018, which was later withdrawn after a number of writ petitions were filed. Article 23 of the Constitution categorically says:
“Every citizen shall have the right to acquire, hold, and dispose of the property in any part of Pakistan, subject to the Constitution and any reasonable restrictions imposed by law in the public interest.”
The condition that non-filers cannot purchase property would neither be reasonable nor in the public interest. Why should a non-resident, not liable to tax in Pakistan or a resident having exempt or below taxable income, be forced to file a return in order to acquire property? In any case, FBR gets information about the purchase of such properties through a withholding tax mechanism. The Commissioner can issue notice for filing of return and wealth statement if the purchaser is a non-filer at the time of purchase. How can his fundamental right guaranteed in Article 23 of the Constitution be infringed?
It is simply shameful that the FBR instead of admitting its failure to enforce provisions relating to filing of returns by people having taxable income has once again opted to penalise those having no taxable income and the public at large, who are already victims of onerous, obnoxious, enormous and cumbersome withholding tax provisions.
Of course, the people of Pakistan are not responsible for the pathetic performance of FBR. It is high time that FBR should put its own house in order and enforce tax laws across the board rather than blaming the already over-taxed people of Pakistan for its own fiascoes and established record of protecting the rich and mighty.
It must be remembered by parliamentarians as lawmakers tax collectors as functionaries of the State and civil servants that non-collection of tax where due is as detestable as its collection, where it is not due as held in CIT Companies, Lahore v State Cement of Corporation (Pvt) Ltd, Lahore 2002 PTD 1603. The jeopardy faced by the masses was also brilliantly highlighted by a senior puisne judge of the Supreme Court, Justice Syed Mansoor Ali Shah in Sui Northern Gas Pipelines v Deputy Commissioner of Inland Revenue, etc (2014) 110 TAX 221 (H.C. Lah.) in these words: “This deprivation [collecting taxes in advance] results in unjustly enriching and benefitting the department”.