Tax amendments

A NEW bill to amend the existing tax laws introduced in the National Assembly on Wednesday is set to increase pressure on tax evaders — identified in the draft as “ineligible” persons — by imposing limits on their spending on various assets beyond a specified threshold. The introduction of the new terms “eligible” and “ineligible” is meant to distinguish tax-compliant persons from non-compliant ones.

Eligible persons would be those who are active taxpayers. The immediate non-filer family members of such persons, too, would be exempt from punitive spending restrictions. The proposed legislation, however, does not abolish the controversial category of non-filers, contrary to repeated announcements by our finance managers in the recent past. Nor does it scrap the 10th Schedule of the Income Tax Ordinance that carries higher rates for non-filers. The reason is obvious: this category generates nearly $700bn a year for the FBR without the board having to move a finger.

The proposed legislation seeks to share taxpayers’ confidential data with commercial banks and private auditors that the FBR plans to hire for detecting tax evasion. Through it, the FBR has arrogated to itself more powers to freeze bank accounts and confiscate the businesses and properties of entities that are not registered as sales tax payers.

Further, it limits the size of investment an ineligible person can make in stocks or the amount of cash they can withdraw from their bank accounts. The proposed legislation has a sort of amnesty for those who have not declared assets related to remittances or inheritance.

On their own, the proposed changes in tax laws will not help the tax authorities achieve the elusive goal of jacking up the appallingly low tax-to-GDP ratio of less than 10pc to 13pc over the next three years as mandated under the $7bn IMF programme. At best, we may see a surge in the number of tax return filers to circumvent the suggested restrictions but without actually boosting tax revenues.

It is because the bill does not endeavour to address the inherent structural flaws such as the system’s inefficiencies, corrupt FBR officials, distortions created by massive tax exemptions given to powerful lobbies, continuous harassment of taxpayers, etc, which act as strong incentives to stay out of the net. Nor does it withdraw the slew of adjustable and non-adjustable withholding taxes, representing inequity and lack of fairness in the tax regime.

Not only that — the legislation also shifts the entire responsibility of ascertaining the tax credentials of both eligible and ineligible persons to other government agencies and businesses. No attempt to raise tax revenues or the tax-to-GDP ratio will succeed without deep structural changes in the taxation system. The gimmicks our bureaucracy is fond of have not produced results and will not do so in the future.

Published in Dawn, December 20th, 2024