Pakistanis are most Heavily Taxed People in South Asia

I have been thinking about this since a while but never could have explained it as done by Bukhari and Haq in their article in Jang newspaper. The point is every Pakistani, whether he is a sweaper, a daily wage worker, a thele wala pays a tax in this country and as per the respected authors, their tax paying average is highest in the entire South Asia!!!

"Contrary to the FBR claim that most Pakistanis do not pay taxes, Pakistanis are the most heavily taxed people in the entire South Asia"

How? its simple, imagine how many people in this country purchases cell phone minutes through prepaid cards, or petrol to put in their bikes, or any item on which a sales tax is applied. It is a common observation that many whose taxable income is a lot less then the limit set by FBR, they still pay tax in the form of sales tax and never file a return. Legally they have the right to file a tax return, but how many knows about it, are there any official efforts to train them? Even I don't know the procedure of how its done as yet. Once we work out the numbers and it is easy to learn how twisted or misdirecting the claims of FBR are... for detials read below:

Myths about Tax Base  

By Huzaima Bukhari & Dr. Ikramul Haq 

The prevailing myth in Pakistan that our tax base is disappointingly narrow and majority of the people do not pay income tax must be exploded as the reality is quite the opposite. The Pakistanis are the most heavily, rather over-taxed, people in the entire South Asia — not only total taxable population but million of those having below taxable income are paying taxes at source, but not claiming refunds by filing of returns.
In most of the cases, the tax deducted is the full and final discharge of liability. Section 115(4) of the Income Tax Ordinance, 2001 says that this class of taxpayers is only required to file statements and not regular returns. Since only a fraction of taxpayers file returns or statements, a wrong impression exists that our income tax base is narrow. The fact is income tax payers are in millions, but return filers are pathetically low — less than 1.5 million.
According to Pakistan Telecommunication Authority (PTA), there were 118 million mobile users in Pakistan as on 30 June 2012. A huge population, not less than 60 million (if we exclude multiple and inactive subscribers), paid both 10% income tax and 19.5% sales tax for using this facility in 2011, but only 513,044 individuals filed income tax returns. The Federal Board of Revenue (FBR) did not bother to issue notices to them after utilising data available with the service providers. Majority of the mobile users might not have taxable income yet they never bothered to claim the tax withheld back by filing tax returns — primarily because it would have cost more than the amount withheld.
On the contrary, majority of the rich just pay a fraction of income tax on their colossal incomes — in 2011 only 14,978 individuals in Pakistan filed tax returns showing taxable income exceeding Rs500,000! This confirms beyond any doubt the ineffectiveness and incompetence of the FBR. Our tax base is not narrow as over 50 million are paying income tax at source, but the rich and mighty are not paying taxes according to their ability.
If Pakistan has 10 million individuals having taxable income of Rs1.5 million (a very conservative estimate), total income tax collection from them should have been Rs3750 billion. If we add income tax collected from corporate bodies, other non-individual taxpayers and individuals having taxable income up to Rs1,000,000, the gross figure would be nearly Rs5000 billion. The FBR collected only Rs716 billion as income tax in fiscal year 2011-12 — it shows a whopping gap in income tax alone.
The FBR has been apologetic, specifically before the IMF and the World Bank, that total income tax payers in Pakistan are just around 1.5 million in a population of 180 million. This is a blatant lie. The truth is that since July 1, 1992 all commercial electricity consumers (including about 5 million retail outlets in urban areas) are paying income tax whether their income is chargeable to tax or not. In 2007, this tax was converted into minimum tax, except for companies and from 2008 with the threshold of Rs20,000.
Any business outlet receiving electricity bill exceeding Rs20,000 is to pay 10% as advance income tax. The total number of commercial and industrial electricity consumers in Pakistan is more than 20 million. It means that during the financial year 2011-12, the total number of persons who paid income tax under section 235 of the Income Tax Ordinance, 2001 was not less than 20 million.
The FBR, in its Quarterly Statement for April to June 2012, admitted that tax collection from telephone/mobile and electricity users during the financial year 2011-12 was Rs37 billion and Rs15 billion respectively. It is worthwhile to mention that total number of mobile and land-line telephone users, subjected to withholding tax, in this period was in excess of 50 million and yet the FBR says that our tax base is narrow.
The above figures explode the myth that Pakistan’s tax base is narrow. It is a matter of great pity that the FBR itself does not know how may people in Pakistan are paying income tax. The people of this country are accused of not paying income tax; whereas the reality is that even today a small shopkeeper in a village (whose annual total income is much below the minimum taxable limit of Rs 400,000) is paying minimum income tax of Rs 960 per annum with electricity bill of Rs600 per month. On the contrary, the absentee landlord of his village, who is earning millions by giving fruit orchards on lease, is paying negligible amount, it at all, as agricultural income tax.
The total urban population of Pakistan, according to Economic Survey of Pakistan 2011-12, increased from 65.3 million in 2010-11 to 67.5 million in 2011-12. The percentage of rural population is around 60% now. Out of total population, 45% are below the age of 15 years (they are not income earners, hence cannot be taxpayers). The total labour force stands at 57.2 million, out of which 40 million is rural labour force.
Reading all these facts together, the income tax paying population of Pakistan having taxable income during the tax year 2011 could not have been more than 25 million, yet over 50 million paid income tax as mobile users. Thus entire taxable population and even those having below taxable incomes are already paying income tax at source under various sections (section 148 to 156A, section 234 to 236 of the Income Tax Ordinance, 2001), yet the FBR is engaged in a vicious propaganda that people of Pakistan are not paying income tax and that our tax base is narrow.
It was the duty of the FBR to allot National Tax Numbers (NTNs) to all those who paid income tax under section 148,149,150,151,152,153, 153A, 154,155,156, 156A, 156B, 231A, 231AA, 231B, 233, 233A, 233AA, 234, 234A, 235, 236, 236A, 236B and 236C in 2011-12 and forced them to file tax returns under section 116 and/or tax statements under section 115(4) of the Income Tax Ordinance, 2001, as the case may be. Had the FBR done this by just obtaining the names and particulars of PLS account holders of banks, commercial and industrial electricity consumers, mobile and land-line users (paying tax with bills) and vehicle owners, Pakistan would have over 40 million income tax filers.
It is the FBR’s failure, for which it cannot blame the public at large. Are the people of Pakistan responsible for this pathetic performance? The responsible officials of the FBR should be taken to task for this state of affairs. It is high time that the FBR should put its own house in order and enforce tax laws rather than blaming the others for its fiascos.
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The writers are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS). This is cross post from The News