Illogical Withholding Tax

[awaisaftab]

Withholding tax is imposed under the assumption that an individual or class of individual has a certain limit of income which is taxable. But in Pakistan WHT has also been imposed even of Pre-Paid mobile cards which is illogical.

[kamranACA]

Dears,

In Pakistan people are not that educated about their rights and they also don't realise their obligations. They at large don't know which taxes are final liability and which ones are adjustable. Tax paid on mobile cards is not just one example.

If some one's income is lesser than the minimum taxable income, he should file income tax return and claim refund of all adjustable income tax paid by him during the whole year. This is very simple and no body can ever deny giving such refund. Such filing has been made quite easier in recent years.

The thing is we should realize our citizenship rights and obligations and we should come out of the short cuts which are always the route we prefer. If we need a transparent documented economy we should opt filing income tax returns and wealth statements (as these have direct linkage with income) even if we are not legally obliged to do so. If we will hide our heads and will adopt the short cut the Govt exchequer will keep on getting undue benefits of such taxes which are never claimed as refundable.

At least we finance professionals should educate the people around us. Please remember my words, nothing is illogical except for our behaviour towards the socio-economic and political responsibilities.

Regards,


KAMRAN.

[Hasaan]

totally agreed with kamran.

the biggest problem of our society that men in POWER are abusing their powers and crushing the rights of public. but the problem is public dont their rights.
if somebody has no knowledge of its right then, even somebody abuses its power he is doing right in one stance. atleast when people get uncomfortable they will start considering what are their rights and how to fight for it...

another dilemma is that... one who knows something he DOESNOT pass it over to other people... i am not saying everybody is doing this. but 99% are doing the same. so that they can make money...

filing a tax return is getting easier and easier day by day... even FAQs on FBR's website are very helpful even for a layman. but who cares reading it or asking?...
i know someone who files returns of teachers of one govt. institute... and he charge 7000! just for filing a return...

but the thing is he is not doing wrong by charging 7000/- the WRONG is people are giving him 7000 without consulting anybody... such a pity....

i think the only thing that we people can do is to transfer what we know to others. through what ever means we have. by word of mouth by email by a webpage by writing... etc...

[awaisaftab]

Hassan,

You are absolutely right tax consultants are charging huge amount for their services. You are talking about lay men but many professional accountant also taking services of tax consultants only due to the reason the tax work require update knowledge and the knowledge of SRO's issued by FBR.
In fact people have no knowledge about the tax credit they can claim while filing tax returns.
My elder brother received a tax deducted certificate of tax deduction from warid telecom of Rs 1600/- something but he does not know it purpose.

There is a need of a intensive compaign to educate people about tax laws. As well as the people who do not pay tax should be encouraged to pay their tax.


Regards

Awais

[kamranACA]

Dear,

There are so many ITPs providing such consultancy and every one who has any considerable amount of refundable tax, he should opt to file return and claim refund. This can be done by making cost benefit analysis.

We must understand that without filing return one cannot get his refund.

Consultants charge huge fees because people at large are ignorant, I agree, and off course they are consultants.


Regards,


KAMRAN.

[LapTop]

Its a logical, In pakistan no one want to pay Tax, and may peoples don't pay Income Tax, Every peoples who eran income he is bound to pay Income tax, but they don't pay even they don't have NTN numbers, so FBR collect Income Tax from these peoples by Transactional Advance Tax, like on mobile phone cards, on telephone bills, on cash withdrawals from bank, purchase of new Vachel's, at the time of Vachel's Excise tax paid, If a person is Law abiding Tax payer, then he can adjust these advance tax otherwise not

[Hasaan]

excise tax is adjustable?... i dont think its even a tax... its a duty...

but whether it is adjustable? i dont think so...

[LapTop]

ary nahi yar,, Excise Tax is not Adjestable, jab aap new gari registerd karwaty ho tab Aap at the time of registration Advance tax pay karty ho, jo adjestable hay,, or jab annually aap gari ki excise tax pay karty ho to us k sath bhi aap Advance Tax pay karty ho jo Adjestable hay.

[LapTop]

TRANSITIONAL ADVANCE TAX PROVISIONS

231A. Cash withdrawal from a bank 228
231B. Purchase of motor cars and jeeps 228
234. Tax on motor vehicles 230
236. Telephone users

[awaisaftab]

[quote]<i>Originally posted by LapTop</i>
<br />Its a logical, In pakistan no one want to pay Tax, and may peoples don't pay Income Tax, Every peoples who eran income he is bound to pay Income tax, but they don't pay even they don't have NTN numbers, so FBR collect Income Tax from these peoples by Transactional Advance Tax, like on mobile phone cards, on telephone bills, on cash withdrawals from bank, purchase of new Vachel's, at the time of Vachel's Excise tax paid, If a person is Law abiding Tax payer, then he can adjust these advance tax otherwise not

Mr Lap Top you are right that many persons who are liable to pay tax do not pay tax. The number of tax payers is only about one million iin Pakistan. Government has many options to broad the tax net. But it is not logical to levy withholding tax on mobile cards.

According to principles laid down by Economists to levy tax withholding tax can be levied on the persons or class of persons who are assumed to be liable to pay tax on the purchase of goods and services purchase by them.

you know that even teenagers,children and low income person purchase
mobile cards etc .

Regards'

Awais Aftab

[kamranACA]

Dear,

Quite some time in past I read K.K.Dewit's book on economics in my B.Com.

There had been a topic on CANONS OF TAXATION. One may find this topic in other such books.

Anyways! This just came to my mind after seeing your last post.

Buddy, kids who purchase the cards are not the earning hands. Rather they get such money from elders who are in fact the earning hands. All over the world taxation is imposed through two routes i.e.direct taxes and indirect taxes. You may be knowing but are advised to study in detail which economy needs which sort of taxation.

Last FBR chairman, during a seminar, explained how the proportion of direct taxes has been enhnaced and indirect taxes has been reduced in Pakistan over the period. This is a long debate and the concept behind imposing such hidden indirect taxes has to be understood after studying the fiscal and monetary policies, attitudes, norms and level of civilization.

The need of the hour is to educate the people and understand what rights and obligations we have. The day our larger proportion will understand it the ratio of indirect taxes to direct ones will eventually come to zero.

You might have noticed the abolishment of section 113, minimum tax @0.5% on tunrover in case of declaring loss. Things take time to get to the right destinations. Enforcers have their own limitaions, face so many obstacles and last but not least are in fact not up to the mark in addressing all the issues assiduously and simultaneously.


Regards,


KAMRAN.

[awaisaftab]

Dear Kamran
You say that the kids who purchase mobile cards received the money from the elders and their income is assumed to be tax able. In market there are choclates and biscuits whose prices are hundreds of rupees. (under section 236 of ITO,2001 10% WHT levied on mobil cards
see also PART V of Schedule 1)
Assume a kid under the age of 10 years go into a market and purchase choclats and cookies of Rs.1000/- .An economist will blindly say that the withholding tax should be imposed . I think it will too unfare. Your argument given by you in your last post may be used by any economist or legilature.

You quoted the remarks of ex chairman of FBR that government making arrangments to reduce indirect taxes and increase direct taxes. In fact government government increasing indirect taxes. You have noticed that this year government increases general sales tax rate by 16% from 15%. As well as FED on mobile services has increases by 21% from 15%

I have read all cannons to levy tax.


Regards,
Awais Aftab.

[kamranACA]

Awais,

Indirect taxation percentage has reduced over the period in Pakistan. It's not merely a statement of FBR chairman. One can search for and check out the analysis to know the facts.

There is no harm in eliminating all the taxes so that a kid eating chocolate must not pay the tax. But for doing so we will have to shoot up the direct tax percentages which will not be easier to digest. I told you that levy of indirect taxes has so many reasons and one has to consider whole social and economic set up. Certainly all the policy making people are not the duffers although we may find such instances as well.

Some people have been proposing to levy taxation on the basis of COST of living and EXPENDITURES instead of using the income approach. In my view emenating from a proper sruvey/investigative study, the expenditure based approach of taxation is the need of the hour. However, it will take much efforts which we may not afford.

You will appreciate that every child cannot purchase chocolates and cookies of Rs. 1000. You may also be knowing per capita income of Pakistanis. The kid who purchases such cookies has resources and reasons and earning hands to make such purchases. So the taxes added to the values of such chocolates and cookies are quite justified if we have to follow indirect taxes approach. This is just like; if some one has income below a certain level, he is not taxable and if he has income beyond that level it is taxable.

The taxes embedded in prices are always decided keeping in view the class of people getting affected. This is a general rule. You will appreciate that kids of so many people who declare their income below the taxable limit (or pay a nominal tax figure) are able to purchase such cookies, travel through planes, cars and jeeps, use branded clothes, study in elite class schools, use best quality lap tops, mobiles, and enjoy every facility which the declared figures of their elders' income don't suggest and cannot justify. Why it is so? We need to understand. Although we see that so many other people who genuinly declare such figures don't have resources to educate their kids in high profiled schools, colleges, to dress them up with branded clothes like minnie minors, levis and ben sherman etc, to arrange/use executive transporations, and to live in elite class residential areas. So, it is very simple. The one who affords to expense out should pay the tax and the one who will not afford will remain exempted. This is the concept behind. You might have heard people saying that heavy vehicles should be taxed at higher rates than the light/small vehciles.

While doing so, the policy makers do cause certain harms (sometimes) to the poor and middle class as well. We must remember that when we at large are dishonest, the differentiation may not be possible for the regulators to such a delicate level. However, I personally know and believe that they do so.

I once sent a brief about an idea to FBR for introducing "cost of living based plus residential status based" approach of taxation. They did not give an ear to such idea which I knew at the outset. In countries like Pakistan people living at different locations don't get same level of services from government and regulators. For example the one who lives at Tando Jam must not have the same facilities and opportunities as a person living at Islamabad or Karachi could have. Be it roads, electricity, internet, phone, hospitals and helathcare, education, security or whatever else. A variance exists every where. Same variance could be seen in income levels and cost of living because this commensurates from the origins giving variant level of opportunities and facilities. I suggested that the whole territory of Pakistan should be bifurcated into various taxation hubs in accordance with the level of good governance each location has, and tax rates for all such tax hubs should be different. This will carry so many benefits and incentives for the people and economy as a whole. The rush towards big cities may also be controlled this way. As expected no body replied my communication.

So dear when we talk about money matters, you should understand that money does matter. Economists have always been criticised for being wealth creators and promotors of bread and butter science since the times of Mr. Adam Smith. On the other side accountants are called number crunchers. I know while talking on economic issues we become crual but if it has to be implemented, cruality has to become its part somehow. Money matters!!

Regards,


KAMRAN.

[kamranACA]

Awais,

A reply was expected from you.

Regards,


KAMRAN.

[panjabijutt]

Hi

I know that this topic is a few weeks old now but I thought, I might as well leave my views on here.

WHT and ALL Indirect taxes are presumptive and indiscriminate. Even the CBR/FBR admit as much so on their own website. Whereas Direct taxation can be specific, Indirect taxation applies across the board and does not make any allowances for whether the payer is in High Income bracket or low income bracket. In the UK and USA, indirect taxes are considered to be stealth taxes and are hugely unpopular. Nevertheless, even indirect taxes are in a loose form targeted at high income group. For example, no VAT is applicable on any children's items, books, food etc.

In Pakistan, indirect taxation accounts for the highest bracket of the exchequer revenue, over 41% of all Treasury income is from WHT. I appreciate that as far as the tax regime is concerned with regards to Income Tax and to an extent WHT, there are measures in place to differentiate between low income earners and high net worth individuals. However, despite such measures being in place, the system is still unfair as it puts the burden on the poor and in most cases illiterate people to claim or offset the WHT they have paid at source in their annual tax returns. on simple basic principle level it begs the question that how and why would a poor illiterate individual is going to file a tax return to offset the WHT already paid at source. Also, how many of the population actually knows about this facility. Furthermore, in the handful of cases where adjustments are allowed to be made against WHT already paid at source, how many of the really poor are in position to utilise the adjustments in their tax returns? Lets say a poor man spends 100PKR a month on his prepaid mobile phone card. Most shops do not offer a tax receipt for him to keep in order for him to be able to use it on his tax return. How is he supposed to prove what he has spent on his prepaid cards. Similarly, the adjustments that can be made against loans to purchase new property etc., is a benefit for all across the board, but how many in the lowest income bracket are actually able to obtain loans/mortgages to purchase their own property. The middle class and the rich certainly can go to the big banks and with the new financial revolution get a mortgage, but the poor do not really have such option available to them. yes I know that Microfinance banks are cropping up all over the place but they still only reach a small minority of the population.

Now I can fully understand why the % revenue from indirect taxation is so high in Pakistan. It is the governments way of ensuring that revenue is collected in some form. In most countries Income Tax is the major contributor towards the exchequer coffers. However, in Pakistan just over half a percent of the population pay direct income tax. That equates to just over a million tax payers out of a population probably in excess of 170 million!

The fault lies to an extent with the government who is penalising the masses for the crookedness of the rich (their own ruling class), where the rich get away with paying very little or in many cases nothing but the poor pay majority of the taxes through indirect taxation. I seem to recall that just a few years ago, even our enlightened and born again, reformed islamist/pakistani such as Imran Khan filed a tax return showing that his income for the year was around 2000 rupees!!! Now that is creative accounting!!! ;-)

Instead of penalising the poor by indirect taxation what the ruling class, regardless of what political affiliation they are, need to concentrate on taxing the rich who can afford to pay taxes via Direct taxation.

I apologise for the long ramble, but I just wanted to express my views. I could go on, but think it is wise to stop now.