Govt may withdraw tax waiver for non-filers

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Source: The News

The Finance Minister, Asad Umar, says he’s ready to reconsider the budget proposal of lifting ban on the non-filers of tax returns wishing to purchase property and new cars — a move that sparked controversy, as it meant incentivising the tax-evaders and penalising the taxpayers.

“Yes, it can be reconsidered. There shouldn’t be an ego problem. I am neither all-knowing nor I have any personal interest in granting this waiver. We have invited suggestions to identify genuine cases among them where exemption merits,” Asad told The News on Saturday. “Where I am convinced that the cases merit exemptions, it will be done. This is my personal opinion. Final decision will be taken collectively,” he explained.

During his budget speech late on Tuesday, Asad had justified the proposed waiver for non-filers on the ground that the ban slapped by the PML-N government had hurt the overseas Pakistanis intending to invest in the real estate. As the controversy raged on, two other reasons were listed in defense of the waiver by the financial wizards of the government. The ban on non-filers is in violation of fundamental rights prescribed in Article 23 of the Constitution, according to the State Minister for Finance Hammad Azhar. That it has also affected the transfer of inherited property, as doing so also required the beneficiary to be a filer is another excuse.

All this is coming from the ruling party which has made “widen the tax net” its slogan. Instead of netting the tax evaders, the PTI government is encouraging them to stay out of the net by lifting restrictions. The defense being put up to justify the controversial proposal has been dismissed by the practitioners of the tax law. As for the issue of overseas Pakistanis, a common sense suggestion on offering is that they should be granted exemptions provided they show National Identity Card of Overseas Pakistani (NICOP) as an evidence. Although Asad seems receptive to this idea, Hammad argues that there are expatriates who don’t even have the NICOP, a lame excuse on behalf of expatriates wishing to purchase property but are unwilling to acquire the NICOP.

The NICOP proposal is problematic. It is seen with skepticism by tax experts. Having NICOP doesn’t necessarily mean that an expatriate doesn’t do business in Pakistan. They keep shuttling between their homeland and the adopted countries. Also the fact remains there are big businessmen with major concerns in Pakistan who live abroad. They take exemption from tax returns on the ground of being abroad for over 183 days, a condition that allows them not to file, experts point out. A tycoon of hotel industry is among them, for example. Then what to do with them as the requirement of NICOP alone would give them a clean chit? The experts have the answer: filing must be made mandatory even for the NICOP holders. In case, they are non-resident, they can declare ‘nil’ the payable taxes. Nevertheless, they must be required to provide details of their business and investments in Pakistan if there is any. Even by the government’s own admission, majority of expatriates are investing in the real estate in Pakistan. So whoever among them purchases a plot or house hasn’t necessarily done it for the residential purpose. There is an expatriate, for example, who has invested billions of rupees in Islamabad and Rawalpindi but he is a non-filer. Keeping in view this scenario, such buyers will have to pay due tax on their property business in Pakistan.

The second excuse being presented is Article 23 of the Constitution which states that “Every citizen shall have the right to acquire, hold and dispose of property in any part of Pakistan, subject to the Constitution and any reasonable restrictions imposed by law in the public interest.” Ironically, the government is more concerned about the rights of citizens and less about their duties towards the state; tax payment being one of them as prescribed in the tax laws. Pakistan is a country with a population of over 200 million whereas the tax return filers are just around one million, less than one percent of the population. Again, half of them say ‘nil’ while filing, pretending as if have not earned taxable amount.

Majority of the rich are out of the tax net. A Nadra study in 2010 found 3.5 million Pakistanis who frequently travel abroad, own more than one luxury vehicles and live in posh areas but they are out of the tax net. This waiver of non-filing is not going to benefit the poor of Pakistan, as real estate investors and purchasers of cars range from the middle class to the upper sections of the society. Ironically, the government is set to grant exemption to this economic class while imposing burden of indirect taxes on the poor.

According to Hammad, the non-filers may move the court declaring the ban as a violation of their fundamental rights. As a matter of fact, this ban is in force since July 1 this year and nobody has moved the court. One can’t bet if somebody invokes this section taking a bait from the government. Instead of fearing any legal battle, the government can defend the ban before the court on the ground that it is widening the tax net and bringing only those into the loop who are eligible but are violating the tax law. That the ban on non-filers has stalled the process of transfer of inheritance is the third excuse proffered by the government. They are not in a big number. Out of 10 cases of property transfer, there may only be one case of inheritance transfer. Tax experts believe relaxation may be offered in these cases but not as a blanket exemption.

The beneficiaries of inheritance fall in the tax net but are out of it must be netted during the transfer process. Those who are housewives or retirees may be exempted from the filing requirement.