The Tax Avengers: Defending the Salaried Class and Unmasking the Undocumented Sector

The Pakistan Business Council (PBC) and the Institute of Chartered Accountants of Pakistan (ICAP) have jointly raised concerns about the higher income tax burden on individuals, highlighting the issue of brain drain.

PBC and ICAP have suggested to the Finance Ministry to introduce measures to collect tax revenues from those operating outside the tax net. According to PBC, filers are paying taxes up to 35% of their income, in addition to a Super Tax of up to 10%. When the leftover income is used for personal expenses or the purchase of any asset, they also pay advance tax. On the other hand, non-filers do not pay any tax on their income, and the withholding tax applicable on transactions executed by them on assets purchased is not significantly higher than the rates applicable to filers. The following measures, among others, have been suggested by PBC:

1. Increase the income tax withholding on electricity bills issued to non-filers (not having STRN) or unregistered industrial connections from 5% to 30%.
2. Increase the income tax withholding on electricity bills issued to non-filers (not having STRN) or unregistered commercial connections from 12% to 30%.
3. Levy an income tax withholding on gas bills issued to non-filer industrial/commercial connection holders from 0% to 20%.
4. Increase the advance tax on the purchase of vehicles by non-filers.
5. Advance tax on the purchase and sale of lands by societies developing and selling land parcels. Though applicable, it is not being collected in practice due to the transfer of files only. To ensure transparency and documentation, it should be made mandatory for societies to record and register each purchase/sale transaction with the Real Estate Regulatory Authority (RERA).
6. Agriculture – addressing the parking/whitening of non-tax paid and illicit money: (i) Check and enforce the law. If tax is not paid to provincial authorities, then the federal government must be allowed to collect it. (ii) If tax is paid to provincial authorities, a federal tax return must be filed along with a wealth reconciliation. At present, a wealth statement is necessary but FBR is not enforcing it; this should be enforced.
7. Publicize the sales tax payments of famous restaurants online to ensure that they are declaring their full sales and paying appropriate income tax.
8. PBC has further highlighted that there are more than 4 million industrial and commercial utility connection holders in Pakistan, but only 200,000 are sales tax registered persons, out of which only 40,000 are paying sales tax on a monthly basis.