According to newspaper reports, the economic coordination committee of the cabinet has decided to extend the date for concessional rate of withholding tax of 0.4 percent on banking transactions for non-filers up to the second week of March. The controversy started when the government imposed 0.6 percent withholding tax on banking transactions in the federal budget. However, in the wake of strong protest by the business community, the government cut it to half, but again increased it by 0.1 percent to push traders to register themselves with the tax authorities. There are no two opinions in the notion that tax-to-GDP ratio in Pakistan is very low as compared to other countries in the region. However, according to national and international tax experts, confusing tax laws and multiple tax regimes are responsible for the low tax base in the country.
The matter of tax collections is complex and it needs very careful understanding to apply a solution. Most of the laws give the authorities a mandate to investigate and evaluate tax income of an individual or a company, but suspicions and misunderstanding reign during the whole process of audit and investigations. As a result, ligations start with the government agencies which consume years of precious man-hours of the government officials, businessmen as well as of courts. Withholding tax on bank transactions was introduced in the federal budget in a bid to collect revenues from non-filers of income tax. But across the board application of the order resulted in lower bank deposits, putting the whole banking system in jeopardy. The State Bank has allowed the tax authorities to access the bank accounts of individuals for tax assessment and collection. Now the people have started avoiding banks in business matters. Easy solutions always have complications.
If the government wants to enhance tax net, it will have to win the trust of the business community in the first place. Taxpayers, large or small, be given special citizen cards and facilities in every walk of life. They need attention and respect. A difference between income taxpayers and non-income taxpayers should be visible in society so that the people take pride in filing their income returns. Arrests and witch-hunt of businessmen will further push the potential income taxpayers away and they will never file income tax returns voluntarily. The current practice is that there is no difference between taxpayers and non-taxpayers in society and the government official treat both of them in the same manner. Until a tax culture is created, the voluntary tax amnesty schemes will continue to end in smoke.
