TAXES, ASSESSEES AND TAX COLLECTING PERSONNEL
Rampant corruption is not allowing creation of tax culture
From Shamim Ahmed Rizvi, Islamabad
Aug 30 - Sep 05, 1999
While the Member (Public Affairs) of the Central Board of Revenue (CBR), in an article reviewing "The performance of CBR in 1998-99", published in a section of the press in Independence Day supplements, boasted about taking a big turn from the state of virtual despair to reveling, the federal cabinet took the CBR Chairman to task and expressed dissatisfaction over the performance of his organisation in the collection of taxes and the rampant corruption amongst the tax collectors.
The Prime Minister had invited the CBR Chairman to brief the cabinet on revenue collection efforts. The CBR Chairman Iqbal Farid, inter alia, presented some horrifying figures clearly indicating that the trading community was not paying taxes properly and so the tax collection from the business community was not encouraging. The CBR collected only Rs. 8.2 million from Anarkali Bazar in Lahore; Rs 1.1 million from "Sootar Mandi" Faisalabad and Rs. 90 million from Azam Cloth Market, Lahore. The cabinet was informed that a government officer of grade 17 pays, an average Rs. 8,000 to 9,000 in tax, while wholesale trader in these most important business centres with a turnover of a million of rupees daily, pay an average Rs. 2637 per year. Some of the ministers rightly pointed out that tax evasion on such a massive scale can be possible only with active connivance of tax collecting authorities of the area.
Sources said that Prime Minister Nawaz Sharif took serious note of poor collection of taxes from traders and businessmen. He observed that the traders of Faisalabad and Lahore earned millions of rupees every year, but tax collection was not appreciable. The Prime Minister directed that CBR should make revolutionary changes in the tax collection system not only to achieve the targets but also to broaden the tax base and create a tax culture in the society. He said that the CBR should devise ways and means to eliminate tax evasion and facilitate the system of payment of taxes, eliminate the discretionary powers of the tax collectors so that the taxpayers could be encouraged to pay genuine taxes honestly. And those who do not pay their due share and are involved in tax evasion should be dealt with severely. Tax collectors who fail to deliver should also be punished. Laws should be made more stringent to eliminate tax evasion and smuggling, he added.
Revenue generation has been a perennial problem for Pakistan governments. What has baffled experts is the failure of our governments, past as well as present, irrespective of the ideology of the ruling party i.e. whether it was pro industry or pro farm sector to ensure the general acceptability of any taxes even those imposed on their own support group. Thus Benazir Bhutto could not force the rich absentee farmers to pay income tax. And Mian Sahib is finding it extremely difficult to get the traders to purchase Trade Enrollment Certificates. The resistance, mounted against new proposals for multifarious reasons, has thus been the single major impediment to reforming the tax system.
As officially explained by the CBR Chairman, the big traders already in the tax net dodge the authorities and do not pay even 25 per cent of their due tax. The scheme of trade enrollment certificate (TEC) was introduced to bring the medium and small traders into some sort of tax accountability by asking them to pay a nominal amount is being strongly resisted by this community. The CBR is giving extension after extension for enrollment along with threats of serious action but the trading community is paying no heed to it. The sixth extension allowed by the CBR was valid until August 31, 1999 but till Aug. 20 only Rs. 295 million could be collected against an estimated amount of Rs. 10 billion.
So the feudal and influential just refuse to pay any tax on their farm income. The traders are not willing to pay. They find different ways to evade taxes by bribing the tax authorities. The corporate sectors have devised their own methods to conceal their real profits of course with the connivance of tax authorities. What is the way out in this deplorable scenario?
The threat by finance minister Ishaq Dar that he would let lose FIA on tax evaders, has been resisted by the concerned pressure group. And even though in the case of the traders, Mian Sahib's cousin, a trader and a supporter of the ruling elite, has a small following who have agreed to register under the TEC scheme, yet this group remains small. The proof of this is evident from the following figures; the traders of Lahore had promised Mian Sahib's government at least Rs5 billion under the TEC scheme.
Their plea at that time was; refrain from levying GST on us which would document our income and leave us open to demands of high income tax in the years to come but, instead, get us to pay a fixed tax which would not indicate our true income. Unfortunately thought, till today, even in spite of the extension given to the traders to pay up, the Sales Tax Department has collected no more than Rs 87 million , far short of the Rs 5 billion rupees target. The tax did not work and neither did the threat. Strike is being planned by the traders and they talk of unjustified and anomalous tax system which they insist they will not accept.
Benazir Bhutto could not levy this tax. And once it was levied it was not enforced. Even today all the provincial governments periodically flex their muscles threaten the rich landlords with reprisals if they do not pay. And yet like the loan defaulters, few who are not part of a pressure group have deemed it prudent to pay their dues. The Prime Minister is right when he says that with present rate of taxation, CBR should be able to collect more than Rs. 500 billion annually. He has been repeatedly issuing warning to CBR. During the last week cabinet meeting the entire cabinet besides the Prime Minister warned the CBR in the harshest way. The Prime Minister was perhaps not making a rhetorical remark when he declared at the cabinet meeting that those officials who could not collect Rs. 400 to Rs. 500 billion annually in revenues had no business to be sitting in the CBR. Last year, against the original target of Rs. 357 billion the CBR could collect no more than Rs. 308 billion. The crash of world oil prices has just about saved the situation as the income from petroleum surcharge had shot up pro-rata covering part of the widening gap between the income and expenditure. It is, indeed, a matter of national shame that in this country of over 140 million people, only about 1.7 million pay a part of their taxes. The sting is all the greater when it comes to the business community of this country many of whose members do roaring business and earn profits but pay very little by way of taxes.
Tax evasion and tax collectors' corruption are undoubtedly the two major factors of the country's dwindling revenue over the years. This fact is eloquently borne out by the figures of the tax paid by the shopkeepers in Lahore's major business centres as disclosed by the CBR Chairman to the cabinet. It is simply shameful that the shopkeepers of Lahore's Anarkali and Azam Market and Faisalabad's Sooter Mandi should pay meager amounts of Rs. 2637, Rs. 3763 and Rs. 3150 each annually. This musts have become possible with the connivance of the CBR's personnel, as a junior official must be paying higher amount of income tax. The tax collection staff deployed at these major business centers should be prosecuted and brought to justice, since they are guilty of undermining the country. As a matter of fact a thorough probe should be launched against the conduct of all the personnel assigned the task of tax collection, on the basis of their salary and assets. All assets emerging from corruption money should be confiscated forthwith. Experts have consistently called for drastic restructuring of the CBR, which has emerged as the biggest source of corruption in the country. A terse overhaul of CBR is imperative if increased revenue generation is really desired. It's poor performance for the past several years provides ample justification for such an operation, as the government is compelled to revise its revenue targets downward every year. With sagging economy and mounting IMF pressures, the nation cannot afford to be complacent to take corrective measures for improvement of the situation.