Detailed SUMMARY of the Article “Fancy Tax Scheme,” Dawn, September 23rd, 2024

The article critically examines Pakistan’s recently proposed tax enforcement mechanism, labeling it as ineffective and misaligned with the goal of broadening the tax base. The editorial argues that the new tax policy disproportionately burdens compliant taxpayers, particularly the middle class, while allowing tax evaders to remain unscathed. The scheme, approved by the prime minister, seeks to prevent non-taxpayers from purchasing assets such as cars, real estate, and financial instruments and restricts their ability to open bank accounts. However, it fails to abolish the non-filer category unique to Pakistan, allowing tax evaders to continue their avoidance strategies. The mechanism divides taxpayers into two groups: those declaring an income below Rs10 million and those above. The article points out the unfair assumption that those earning less than Rs10 million are underreporting their income, thus treating them as potential tax evaders, while individuals above this threshold escape scrutiny. Moreover, the system amplifies the discretionary powers of tax officials, increasing the likelihood of corruption. The article stresses that instead of introducing convoluted enforcement mechanisms, the government should focus on plugging legal loopholes, enhancing accountability, and implementing a fair tax system supported by political will and efficient bureaucracy to genuinely expand the tax net and increase revenue.

Easy/Short SUMMARY:

The article discusses Pakistan’s new tax enforcement policy, which targets compliant taxpayers while ignoring actual tax evaders. The scheme prevents non-taxpayers from buying assets but does not address the bigger issue of non-filers. It divides taxpayers into two groups, assuming those who earn less than Rs10 million are underreporting income, while wealthier individuals face fewer restrictions. The policy also gives tax officials more power, potentially increasing corruption. The article suggests that instead of introducing new schemes, the government should fix existing issues and create a fair tax system.

SOLUTIONS of The Problem:

Simplifying Tax Policy

The government should create a straightforward tax policy that applies equally to all citizens, eliminating the special treatment for wealthier individuals.

Eliminate Non-Filer Category

Abolishing the non-filer category entirely will ensure that every citizen, regardless of income, is responsible for contributing to the tax system.

Strengthening Legal Framework

Addressing and fixing existing legal loopholes will reduce tax evasion and hold more people accountable for their contributions.

Transparent Audits

Implementing regular and transparent audits of all taxpayers, rather than giving discretionary powers to tax officials, will ensure fairness and reduce corruption.

Public Awareness Campaigns

Educating citizens on the importance of paying taxes and the benefits of a robust tax system can encourage voluntary compliance and reduce the need for punitive measures.

Digitizing the Tax System

Creating an efficient, fully digital tax-filing system that minimizes human interference will reduce opportunities for corruption and improve transparency.

Equitable Enforcement

Ensure that tax enforcement policies are applied uniformly, so that middle-class taxpayers are not disproportionately targeted while wealthier individuals are given leniency.

Accountability for Tax Officials

Set up strong oversight mechanisms for tax officials to curb misuse of power and reduce corruption in tax enforcement.

Incentivizing Compliance

Introduce incentives for businesses and individuals who are compliant with tax regulations, encouraging voluntary participation rather than forced enforcement.

Political Commitment to Reform

A genuine commitment from political leadership to create a just and equitable tax system will be crucial in pushing for meaningful reform.

IMPORTANT Facts and Figures Given in the Article:

The scheme divides taxpayers into two categories based on whether their income is above or below Rs10 million.
The enforcement mechanism prevents non-taxpayers from purchasing assets such as cars and immovable property.
The policy fails to address the non-filer category unique to Pakistan.
The scheme increases discretionary powers for tax officials, opening avenues for corruption.

MCQs from the Article:

1. What does the new tax enforcement mechanism restrict non-taxpayers from doing?

A. Voting in elections
B. Traveling abroad
C. Purchasing assets such as cars and property
D. Starting a business

2. Which category of taxpayers is treated with suspicion under the new tax policy?

A. Those with an income above Rs10 million
B. Government employees
C. Those with an income below Rs10 million
D. Foreign investors

3. What does the article suggest is increasing due to the new tax scheme?

A. Political stability
B. Corruption among tax officials
C. Tax revenue
D. Job creation

4. What does the article say about the non-filer category?

A. It was abolished in the new scheme.
B. It continues to exist in Pakistan.
C. It is strictly enforced.
D. It is irrelevant to the tax policy.

5. According to the article, what is needed to broaden the tax base?

A. Increased taxes on the middle class
B. Reduced audits for taxpayers
C. A just and equitable tax system
D. More discretionary powers for taxmen

VOCABULARY:

Perpetuates (دوام دینا): To cause something to continue indefinitely.
Non-filers (غیر فائلرز): People who do not submit tax returns.
Discretionary (صوابدیدی): Available for use at the discretion or choice of someone.
Penalising (سزا دینا): Imposing a penalty or punishment.
Underreported (کم ظاہر کرنا): To report less than the actual amount.
Threshold (حد): The level at which something starts to happen or be noticed.
Compliance (تعمیل): The action of complying with a command or request.
Immovable Property (غیر منقولہ جائیداد): Property that cannot be moved, such as land or buildings.
Avenue (راستہ): A method or approach to achieving something.
Audit (جانچ): A systematic review or assessment, particularly of finances.
Plugged (بند کرنا): To block or close a gap or hole.
Kosher (مناسب): Genuine or legitimate.
Equitable (منصفانہ): Fair and impartial.
Scrutiny (جانچ): Critical observation or examination.
Loopholes (نقائص): Gaps or weaknesses in laws that allow people to avoid rules or regulations.
Corruption (بدعنوانی): Dishonest or fraudulent conduct by those in power.
Revenue (محصول): Income generated by the government, usually through taxes.
Exemption (استثنیٰ): Being freed from an obligation, like paying taxes.
Machinery (نظام): The structure or organization of a system.
Political Will (سیاسی عزم): Determination of the political leadership to achieve a particular outcome.

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dawn.com
Fancy tax scheme
Editorial

GOVERNMENTS propose, bureaucrats dispose — often relegating ‘plans’ to an existing pile of schemes gathering dust.

The ‘drastic measures’ suggested by the country’s tax bureaucracy to strengthen ‘enforcement and compliance’ are no different from similar, discarded strategies to boost revenue collection. To begin with, the new tax enforcement mechanism goes against the very objective of broadening the tax net and documenting the economy, as it is squeezing middle-class taxpayers further while letting tax evaders off the hook.

That is not surprising, since the new measure perpetuates a tax policy that burdens compliant taxpayers, instead of bringing tax evaders into the net. The enforcement scheme, approved by the prime minister, stops those who do not pay their income tax from purchasing assets such as cars, immovable property and financial instruments, and from opening bank accounts.

However, it does not propose any step to abolish the category of non-filers that exists only in Pakistan. Likewise, FBR proposes penalising unregistered and non-compliant businesses — manufacturers, retailers, wholesalers, etc — hoping that the new steps against non-filers and non-compliant businesses will force them to eventually become taxpayers.

The scheme divides active taxpayers into two distinct classes: those who declare their annual income as less than Rs10m, and those who report an income above this threshold. The proposed tax enforcement and compliance project assumes, without any evidence though, that every taxpayer falling in the first category must have underreported their incomes and should be treated as tax thieves and at par with those who do not file their taxes.

Thus, they are also liable to face the same restrictions when they go shopping for cars and immovable property or invest their money in financial instruments, unless they can explain their ‘source of income’. They, nevertheless, are allowed to maintain bank accounts. However, no questions will be asked of those whose declare an annual income that is greater than Rs10m. For them, everything will be kosher.

More importantly, the mechanism increases the discretionary powers of the taxmen and opens new avenues of corruption for them, while simultaneously overriding the provisions contained in the laws to selectively and randomly audit the accounts of a certain percentage of taxpayers every year to detect underreporting of incomes.

Similarly, the tax laws also provide for punitive actions against those who under-declare their incomes in their annual tax statements or do not pay taxes at all. If there are any legal loopholes, those should be plugged forthwith. We do not need new fancy mechanisms or schemes to tax those who do not pay their taxes or punish those who steal taxes. What we need is an equitable and just tax system, an efficient and honest machinery, and, above all, strong political will to broaden the base and boost revenues.

Published in Dawn, September 23rd, 2024

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