The government has jacked up its efforts toward documentation of economy and has proposed several provisions in the Finance Bill 2015 to empower itself to obtain information about transactions of funds by taxpayers. The bill provides a legal cover to the government to enter into agreement with banks and financial institutions to exchange information and prevent fiscal evasion. A new section, 165(b), has been introduced through the Finance Bill to enable the financial institutions to provide information about non-resident persons to the Federal Board of Revenue (FBR) to share the information with financial institutions in other countries. The purpose of the new law is to collect information about bad money deposited by Pakistanis in foreign countries, especially in Switzerland. Under the current situation, the government lacks power to access information about such people having money in foreign banks. The whole mechanism will be operated through the official machinery which the government deems as honest. Therefore, formation of a panel has been introduced to conduct special audit of three taxes — income tax, sales tax and customs duty and it will consist of an officer of Inland Revenue or a chartered accountant or cost and management accountant firm. Currently, chartered accountants are allowed to carry out audit of taxpayers. The appeals commissioner has been authorized to grant a stay for 30 days and he will have to decide the case within the extended time.
Finance Minister Ishaq Dar has admitted that the volume of the undocumented economy has become equal to the documented economy and that is point to ponder for the government authorities. Some international institutions have included Pakistan in the list of most corrupt countries in the world and on many occasion the government machinery itself is involved in the promotion of corrupt practices. A majority of businessmen wants to pay taxes but there are several hindrances in smooth flow of funds to go straight to the national exchequer.
A lower tax slab and simple procedure is key to bring new taxpayers into the tax net. A proposal is under consideration to introduce prize schemes to encourage the general public to make purchases from registered persons issuing sales tax invoices. As per the proposed amendment, the FBR has been empowered to reward those who provide information about tax evasion. But the step will create mistrust between government authorities and the business community. The government should have to devise a mechanism to document the whole economy without losing the trust of the businessmen.
