We are pleased to append below the 2nd Blog of the 2nd Phase of Blog Writing. This blog is written by Senior Manager Taxation and Corporate Advisory Services, Mr. Abdul Hafeez. 

Please read this blog in which Hafeez Sahib has masterly described a deep rooted problem and at the same time, he also talked about the remedies in a most concise yet in a beautifully diplomatic language.

In recent years collection of taxes has assumed enormous significance in Pakistan. There is a national consensus that our survival as a self-reliant nation now lies with rapid and substantial increase in tax revenues. The general public and businessmen always view the “zeal” and “enthusiasm” of the Federal Board of Revenue (FBR) in collecting taxes with suspicion and distrust. There are a number of reasons for this reaction. Firstly, the highhandedness, maladministration, inefficiency, abusive behavior and corrupt tax practices of FBR’s officials have created a general atmosphere of distrust between the taxpayers and the State. Secondly, the successive governments have failed to utilize the taxpayers’ money in a transparent manner. The ruthless waste and plundering of public money by the rulers has forced the people to openly defy tax laws.

If we review our tax system in the light of well-known principles of taxation (commonly known as canons of taxation) propounded by Adam Smith, we observe that our tax system considerably fails to fulfill the said principles:

  1. EQUITY: The tax payable should accord with ability to pay or taxable capacity.

In Pakistan the poor are taxed although they have little or no ability to pay and the rich enjoy exemption notwithstanding taxable capacity. The governments over the time abolished wealth tax to safeguard wealth of certain vested interest i.e. people enjoying assets as a result of loot, tax evasion, political bribes and gallantry awards.

  1. CERTAINTY: The taxpayer should know exactly what is being taxed, how much he has to pay and when he has to pay it, meaning that the law should be clear and unambiguous and the tax authorities’ interpretation of it should be readily available.

In Pakistan, there is no certainty about taxes. The administrative authorities continue to play havoc with tax laws through avalanche of amendments every year through Finance Acts/Ordinances and the infamous SRO system while the taxpayers have been subjected to the amazing wilderness of confused laws, vulnerable to varied interpretations and authorities’ explanations adding to the existing confusion.

  1. CONVENIENCE: The tax should be payable in a manner and at a time convenient to the taxpayer.

FBR makes it a point to make the taxpayers’ lives miserable. The procedures for collection of taxes in Pakistan are most cumbersome and inconvenient.

  1. ECONOMY: Enforcement and collection costs should be reasonably proportionate to the receipts.

Quite the opposite situation prevails in Pakistan. The FBR has reduced its cost of collection by shifting its substantial part to the withholding agents / businessmen and that too without giving them any compensation. Adding insult to injury they are penalized for insignificant lapses. In all civilized societies, tax authorities allow percentage deduction to withholding agents/businessmen to compensate for the cost of collection of taxes as agents, but in Pakistan, FBR is taking forced labor from them in utter violation of Article 11(1) & (2) of the Constitution of Pakistan.

Remedial measures: All citizens of Pakistan who are liable to pay taxes should perform their national duty honestly and without any hesitation. The State must ensure them full protection of their rights, transparency in utilization of taxpayers’ money and implementation of a just, equitable and fair tax system.

Abdul Hafeez