Paradox of the Pakistani Tax Payer

It’s been five months since the Federal Board of Revenue published the FBR Taxpayers Directory for the Tax Year 2013 online. Being a repository of immensely valuable insight of this part of our economy, it excited many but disappointed equally when it was found that its 16,847 pages were in PDF, a format which is far from user-friendly when it comes to data analysis. It took its time be converted to a more usable form.

Apart from the usual statistics, one learns a great deal regarding the flow of money and integrity. One discovers that a very popular pizza place with apparently an amicable budget for social media marketing can file 5 digit tax returns. A decades old bakery with such a level fame that its confectionaries are traded for favors in the deepest corridors of power, selling an estimated of 500 cakes per day, files returns of less than a million while an always sold out Nimco vendor with a reputation of its own pays slightly more in comparison.

The names of a myriad of publicly patriotic celebrities, twitterati and citizens claiming to be most willing to sacrifice their lives for their country when required are absent from the directory; giving rise to the assertion that they avoid paying taxes altogether. All one has to do is search them in the list to see that the professions of love for country are eligible for an Emmy nomination. Finding out that acquaintances and relatives who gloat about their salaries (without being asked of course) overstate them by ~60% is a bonus unmatched.

Needless to say, the document is a severe invasion to the privacy of Pakistanis. Anyone with rudimentary knowledge of tax rates can reverse engineer returns filed by an individual into his/her monthly income (a sample worksheet without formulas for the salaried class can be found here) thereby providing a prodigious platform for extortionists including rishta intermediaries to identify high value targets. This means that the very minority of people who demonstrate loyalty to the regime and fulfill their civil responsibility stand exposed by their own government due to its lack of meticulous care for citizen’s privacy. To be honest, a document with only NTN numbers could have sufficed.

It is indeed distressing to witness the enormity at which recording tax returns is neglected and possibly manipulated in our country. The directory identifies three kinds of entities that pay taxes to the state i.e.  Companies, Association of Persons and Individuals.

A total of 23,845 companies filed tax returns for the year June 2013 (until April 14, 2014). 10,639 or 26.14% of them filed tax returns that were either 0, “-“ or negative. The rest of the 13,206 companies submitted returns amounting to ~315 billion rupees (315,859,550,758); translating to ~74% of tax returns filed.

40,700 Associations of Persons filed returns in the same period. 15,967 or 39.23% of them recorded amounts which were either 0, “-“ or negative. The rest of the 37,812 Associations submitted returns totaling to ~29 billion rupees (28,828,505,329). This amounts to a contribution of 7% to the total returns.

The portion of individuals was found to be most inadequate with only 744,626 individuals filing tax returns in the period. 350,298 or 47.04% of these individuals submitted returns that were either 0, “-“ or negative. Returns by the rest of the 394,328 amounted to approximately 83 billion rupees (83,108,459,079) which is 19% of the total returns recorded. It’s hard to imagine that out of a population of 180 million only less than half a million are financially capable to file positive tax returns.

So how can the Government be expected to collect more taxes (fairly, and without bias)? The first step is to get everyone registered and have NTN numbers. Every person who has an NIC needs to have an NTN, including those who do not fall into the tax bracket.

This can only be made possible when citizens without NTNs are made to pay more in almost every aspect where an NIC is required. Whether it be purchasing cell phone credit, property (there seem to have been measures taken in this regard), or even when conducting a banking transaction like funds transfer, cheque clearance, use of debit or credit card, fee or bill payment. This will also allow for greater tracking of individuals and their various modes of earning, and be a great help in the security concerns currently harassing the country.

A more subtle way can also be to introduce mechanisms that facilitate the application of a lower rate of indirect taxes on individuals registered as compared to the ones that need to register. Differentiation can also be made in the charges of social services and utilities. This will compel more citizens to get themselves enrolled with the FBR. Additional incentive can be provided to those who also file tax returns.

Once a sizable number of NTNs has been registered, data can be collected and proper notices can be sent for the declaration of income or source of income, tax payments and eventually tax returns wherever required. The usage of technology can do a great deal in data gathering while preserving privacy and transparency. This is the only way to shift from indirect taxation to direct taxation and working towards a system which makes tax refunds a reality. It would only be beneficial however when the pillars of governance support its execution.

How can you as a citizen help apart from paying taxes and filing returns? Search for the establishments that you do business with from the directory. If you find their tax returns to be dubious or non-existent, avoid business with them or at least question them. These include hospitals, schools, hotels, restaurants, real estate agents, transportation services, water services, caterers, retail stores, apparel and many more. The same can be done with the public figures one follows. It needs to be realized that those who avoid paying back to the state can surely have less integrity. It’s the hour for all and sundry to ask and answer for the elephant in the room or lack thereof.

No state can survive honorably without having control over the flow of money within its borders. It is time to play our part and help our wonderful Pakistan prosper.

The FBR Taxpayers directory in Microsoft Excel can be found here

Disclaimer: Omissions of data in excel form (if any) are unintentional or due to minor errors in the conversion process.