The impression that the city of Karachi which contributes by far the largest amount to the government exchequer is unfairly treated by the Federal Board of Revenue (FBR) is increasingly gaining currency. The latest development to strengthen such a perception was the selection of taxpayers for audit through a computer ballot in the financial year 2013-14.
Expressing serious concern over selection of 77,500 taxpayers for audit, Iftikhar Vohra, President of the Karachi Chamber of Commerce and Industry (KCCI), has asked the FBR to provide details of total number of Karachi-based taxpayers including the total amount and percentage of the income tax, sales tax and federal excise duty recovered from the city of Karachi during the year.
Vohra feared that the majority of Karachi-based taxpayers selected for audit will bear the brunt of audit notices, harassment and extortion by field officers. Karachi-based taxpayers, according to the KCCI, are contributing nearly 65 percent of total tax revenue of Pakistan and do not have the capacity to further increase the quantum of income tax and sales tax due to adverse conditions and unfavourable business environment in country’s economic hub.
It was also asserted that despite contributing a major percentage of total tax revenues, very little was spent on restoration and development of crumbling infrastructure, security, and provision of utilities to a large number of industries and businesses located in this mega city.
The KCCI also asked the FBR to involve and take input from the trade body in the audit process. Besides, it would be appropriate for the revenue body to publicise the relevant data and collect figures for each region.
KCCI would not accept any discriminatory and arbitrary increase in the number of cases selected for audit in respect of the Karachi-based registered persons.
In our view, the FBR needs to take stock of the situation in a cool and careful manner and respond to the concerns of KCCI in a way that would satisfy the members of KCCI to a large degree. This is so because if the complaint of the KCCI is not addressed properly and timely, it could lead to further alienation of a group of taxpayers who are very important for the revenue generating capacity of the country and could cause a lot of problems to tax mobilising efforts of the government. Even otherwise, the charge of a discriminatory treatment is too serious to be ignored or taken lightly. The FBR could take the easy route and argue that since the number of taxpayers in Karachi is the highest in the country, the cases selected for audit through a random computer ballot were also bound to be the highest. However, such an argument would have been fully justified if taxes were imposed and collected fairly and equitably throughout the country.
The fact of the matter is that citizens and corporates with their head offices in Karachi are generally more law abiding, tax compliant and an easy prey for the tax collectors while rich people in other parts of the country with taxable incomes either evade taxes with impunity or use their power and clout to escape the tax net in one way or the other.
This has caused a lot of heart-burning in Karachi. Despite the loud claims of the Finance Minister, FBR is still avoiding the more challenging task of laying its hands on those who are leading the lifestyles, which are lavish by any standards.
The country’s tax collection organ has claimed to have compiled the list of more than 700,000 individuals who are living beyond their means and have assets worth millions of rupees but are not paying taxes; neither the list was published nor adequate measures were taken to recover income tax from this group of tax evaders.
Only letters to some of the individuals from the list were issued but most of these individuals were said to be untraceable and no further action was reported to have been taken.
The decision of the FBR to increase the percentage of the number of cases selected for audit to 15 percent and not to pursue the cases of non-taxpayers vigorously testifies to the growing perception that FBR is trying to enhance revenues by squeezing the same set of taxpayers who are already paying their taxes on a regular basis, instead of making intensive efforts to broaden the tax base by identifying new taxpayers throughout the country.
There are two other factors which need to be seriously considered in this connection. Firstly, it is generally believed that the FBR does not have the capacity and sufficient field force to conduct huge number of audits selected through the ballot this year. As such, the exercise could be largely unproductive or amount to witch-hunting.
And secondly, KCCI may have tolerated excessive audit of tax returns if a large amount of tax collected from the city of Karachi would have been spent on the improvement of its infrastructure and security. Since this is not the case, the grievances of the KCCI continue to multiply and this is not a good omen for a healthy relationship between the taxpayers and tax collecting machinery of the country. The least the FBR could do is to consult the KCCI on the issue with an open mind and find an amicable solution to satisfy its concerns. The impression that Karachi gets a raw deal in tax matters, in particular, needs to be dispelled without any further loss of time.