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Determining fair income tax base

According to the latest data available on the website of Pakistan Telecommunication Authority (PTA), as on December 31, 2023, total number of SIMs issued was 189 million (78.93% mobile teledensity); out of these, 128 million were broadband users (53.20% mobile broadband penetration), 3 million basic telephony users (1.07 fixed teledensity) and 131 million broadband subscribers (54.58% broadband penetration).

‘SIM’ (Subscriber Identity Module), a smart card used in digital phones by a subscriber to avail GSM (Global System for Mobile communications), is issued only after biometric verification and data contained in Computerised National Identity Card (CNIC). Not less than 130 million unique mobile users (many having more than one SIM) have been paying advance/adjustable income tax of 15% with effect from January 15, 2022, imposed through Finance (Supplementary) Act, 2022.

Out of 130 million unique mobile users, 30 million, having taxable income as per conservative estimate are liable to file income tax returns. However, the existing individual income tax return filers as per Active Taxpayers List (ATL) as on 19 February 2024 was 3,968,165. The ATL is updated every Monday on website of the Federal Board of Revenue (FBR). Among these “filers”, over sixty percent have shown below taxable income or losses. As obvious from the available data, the existing gap in filing of income tax returns by individuals is not less than26 million individuals.

In 2015 the Supreme Court of Pakistan, allowed PTA to permit cellular companies to issue three data-only SIMs, used specifically for internet browsing, in addition to the five SIM-limit already in place for voice callers, per individual. Before this decision, under PTA’s rules, people were allowed only to have up to five SIMs per one CNIC. The Supreme Court further directed PTA “to review this order in three months and, in case the authority needed to increase the number of data-only SIMs allowed to an individual”, it could do so on its own without seeking further intervention from it.

Many individuals have more than one SIM. The actual number of mobile users per CNIC is not less than 130 million. Many business entities not only get SIMs issued in the names of employees but also pay their bills.

In terms of section 236 of the Income Tax Ordinance, 2001 [“the Ordinance”], all of them have to pay advance and adjustable 15 % income tax, irrespective of whether they are earning taxable income or not with exceptions provided in section 236(4) of the Ordinance, which reads as under:

“Advance tax under this section shall not be collected from Government, a foreign diplomat, a diplomatic mission in Pakistan, or a person who produces a certificate from the Commissioner that his income during the tax year is exempt from tax”.

It is quite intriguing that many government servants are entitled to have official phone connections at home enjoying exemption from paying advance tax. Their official phones must be closely monitored to ascertain whom they call for official and non-official purposes, as bills are paid from taxpayers’ money and FBR gets no advance tax!

In the latest Year Book 2022-23 issued by Revenue Division, income tax collected at source under section 236 of the Ordinance for fiscal year 2022-23 was Rs 87.283 billion. If we calculate from this number, the approximate revenue on which four cellular companies collected tax for FBR, it comes to Rs 581.88 billion. On PTA’s website, the total revenue for fiscal year 2021-22 of telecom sector is shown at Rs 325.2 billion. The difference between tax withheld and revenues earned by telecoms every year may be due to exemption certificates obtained from the Commissioner of Inland Revenue (CIR) and categories exempted under section 236(4) of the Ordinance.

Out of 130 million paying advance income tax under just one head of withholding tax, at least 104 million, are not chargeable to tax. It is against the Constitution of Islamic Republic of Pakistan [“the Constitution”] to take advance income tax from them.

The legislature, above party lines, should realise that this group of taxpayers include the poorest of the poor, who are even entitled to cash-handouts from Benazir Income Support Programme. Just for the sake of collection of Rs 87 billion, great injustice is being done to the people of this country. FBR should chase only those who have taxable income but are not filing tax returns. Advance income taxation with mobile expenditure is the worst one can think of in any tax policy.

Those not filing returns having income chargeable to tax can be traced from the data available with the four cellular companies alone. Their share in market, according to PTA is: PMCL (Jazz): 37.27%, Telenor 23.61%, CMPAK (Zong): 24.90% and PTML (Ufone): 13.31%.

The Commissioners Inland Revenue Service (IRS), using powers under section 176 of the Ordinance, can seek information from cellular companies about those paying amounts exceeding Rs 60,000 per annum to determine how many in this category are not filing returns and what is their source of meeting this and other expenses, including resident individuals owning expensive handsets and travelling abroad while using roaming service, but are non-filers.

It is totally unjustified to ask four telecommunication companies to collect advance income tax from 130 million individuals and deposit the same in the government treasury. It is a classic case of bad tax policy and legislation on the part of the National Assembly, and to the extent of sending recommendations, on the part of Senate under Proviso to Article 73(1) of the Constitution in the case of Money Bill. It is allowing IRS authorities to abdicate their duties by getting hooked on “easy collection” like “easy money”.

In Pakistan, the ultra-rich are avoiding tax obligations whereas millions having no income or incomes below taxable limit are forced to pay advance tax in flagrant violation of Article 4(c) of the Constitution. FBR cannot force them to engage a tax adviser to file return and wealth statement, pay fee to get a paltry amount of refund? FBR is only taking data on the basis of returns filed. It is their duty to issue notices to those having taxable income, paying tax at source, yet not filing returns.

It is about time the new government in making took appropriate action and ordered FBR to pay refunds of 15% collected from 90 million whose income is not chargeable to tax. Simultaneously, FBR will get a tax base of 30 million individual income tax payers. Refund to millions not chargeable to tax for the last ten years will help those suffering due to economic miseries during an historic high inflation period. This is their money and should be returned to them not as charity but as a matter of right — a beginning to establish rule of law (fair income tax base).

Huzaima Bukhari, Dr Ikramul Haq and Abdul Rauf Shakoori, "Determining fair income tax base," Business recorder. 2024-02-23.
Keywords: Economics , Economics conditions , Advance tax , Income Tax , Tax policy , Supreme court , PMCL , PTA , FBR

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