The list of exemptions from total income tax include Capital gain, amount received on sale of dollar bearers certificates, income from private foreign currency accounts and host of other incomes. "Export of certain goods" is partly exempted from income tax but the goods enjoying the exemption and the degree of exemption is not elaborated. However, according to CBR yearbook, 1994, earnings from 258 export items are liable to exemption in payment of income tax, at varying rates.
Besides tax holidays in the industrial estates and 180 total exemptions, the taxation system has in-built loopholes that help the rich and influential in avoiding payment of income tax. Thus, in 1992 boom year for textile, only 36 textile units paid income tax amounting to Rs 141 million and both Benazir and Nawaz Sharif accused All Pakistan Textile Mills Association (APTMA) of evading taxes.
A frank and candid response to why Pakistan's industrial barons are not paying income tax proportionate to their income was provided by industrialist Farooq Somar in an interview with monthly Newline, Karahi issue of October 1995. He was asked to comment on the fact that the entire textile industry pays less income tax than employees of one multinational.
" Under the tax laws prevalent in the country today, there is a thing known as "accelerated depreciation allowance". This allows one, for income tax purpose, to show a loss by claiming accelerated depreciation on new machinery. This is not evasion of income tax but avoidance of tax through legal means" was his reply.
Export duties were introduced by Z A Bhutto govt in 1972 after the massive 110 percent devaluation to prevent windfall profits into hands of the exporters. But they have continued as a measure of revenue collection.
While an export tax is collected by the federal govt, the local bodies also collect export tax on goods exported from their municipality, whether for domestic consumption or export. The export tax paid to the local bodies is claimed by the exporters for refund and has again given rise to new avenues for corruption and pilferage. In the sub-chapter about rebates bonanza, we have already referred to the statements of Punjab Minister for local bodies Raja Mohammad Basharat Elahi that the contractors of the export tax and octroi owed millions to the govt in this head.
In simple words, development surcharge is levied on goods which are imported or produced cheap but are sold at high price fixed by govt. However, over the years the purpose and the very nature of the development surcharge has been distorted and its worst form it is now applicable on WAPDA electricity bills, at such an exorbitant rate that the amount of surcharge far exceeds the original bill for electricity consumed.
As is obvious from the name, development surcharge was meant to finanace specific development projects but ironically a large portion of receipts from development surcharge are refunded, by way of refunds for specific purposes. As for example, a large portion of development surcharge from refineries is refunded to marketing companies to cover;
A) transportation cost over and above the freight margin included in the consumer prices for the equalization of prices of petroleum products.
B) Imort cost of refined petroleum products over and above the ex-factory prices and
C) Operating charges of new storages constructed under government directives.
An estimated Rs 35 billion is expected to be collected by Development Surcharge on oil and gas during 1997-98. Meraj Khalid govt had estimated that price equalization fund alone was costing Rs 13 billion to the govt and therefore announced a time-frame for removal of freight equalization subsidy. The decision has been shelved and an eyewash of the former scheme is on the anvil under which petrol pump owners will be supplied petroleum products at ex-factory prices.
Many countries have abolished wealth tax in favor of a progressive taxation system and in Pakistan also there has been a demand for abolition of wealth tax on the ground that it helps create black money. The biggest argument against the tax was that yields from wealth tax are not worth the hassle and administrative machinery assigned to collect it. The wealth tax is also used by the tax evader to camouflage their tax liability, since the amount paid as wealth tax is deducted from the total income earned, to determine the total income tax liability. (also see Robber Barons of Pakistan).
More billionaires were made in Pakistan's bubble economy during 1990-93 on Karachi Stock Exchange than ever before but their gain remained untaxed because there was no capital gain tax. Similarly the real estate boom also went untaxed because of the same reason.
Thus all the rich-persons
related taxes have been abolished or made ineffective through seried of
exemptions and concessions and burden of indirect taxes on common men has
How Corporate Law Authority Helps them
Table of Contents
Pakistan's Tax Web
Barons of Pakistan