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Establishment in Pakistan.
- a diagnostic evaluation.
M Munir Qureshi
Advisor to the Federal Tax Ombudsman,
Pakistan.
3. The ‘tax system’ outlined above, based on the Income Tax act
of 1922, adapted as it is, in 1947, had very close interaction
between an all powerful assessing authority overseeing a
relatively ‘harsh’ tax regime – in terms of liability created,
especially in the higher tax brackets- and the tax paying public.
Coupled with the fact that there was no rigorous system of
accountability in place, this became an ideal environment for
the arbitrary exercise of discretionary power by the assessing
officer and a rapacious clerical bureaucracy linked with the
office of the ITO and much of the maladministration in these
years was relatable to this environment. Record keeping was
on almost exactly the same lines as in pre-partition British India
ie entirely ‘paper driven’ with no access to any technological
innovation – other than the now archaic manual typewriter.
Corruption was rampant but the taxpayers did not complain a
great deal as they were generally ‘comfortable’ with the
corrupt environment in which they ‘saved’ a great deal of
income from taxation by paying what was generally perceived
to be, a limited amount by way of a bribe. Taxpayers did their
utmost to keep the ITO and his ‘staff’ – especially the Circle
Inspector, the record clerk and the ‘assessment’ clerk happy as
they knew they had a great deal of authority and a strict
assessment invariably entailed a heavy tax liability because of
the harsh tax rates in force – as high as a confiscatory 98% for
the highest tax bracket in the early 1970’s. Many ‘Individual’
taxpayers were placed in the ‘no accounts’ category and did
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6. The Income Tax Act 1922 was superseded by the Income Tax
Act 1979. Tax rates had started coming down and self
assessment of income was now in place for a much ‘enlarged’
taxpayer population but was still far from being ‘universal’ in
scope especially with regard to corporate taxpayers who were
not only denied the benefits of self assessment of income but
continued to suffer from a discriminatory and harsh, three
tiered tax rate regime. The ‘no account’ category of taxpayer
was still there. This phase however saw the beginnings of
workplace automation and the Personal Computer and the dot
matrix printer enabled information to be stored on computer in
digital format for the first time in tax offices. Also, mini main
frame computers were put to use, again for the first time, for
data entry related mainly to the storage and processing of tax
collection challans.
12. The Third Phase which began with the introduction of yet
another tax law, the Income Tax Ordinance of 2001 now sought
to re-cast the entire tax system. Starting with universal self
assessment for the first time for all categories of taxpayers – ie
including corporate taxpayers, authority was now delegated on
functional lines “from the top down.” Whereas under the first
two tax laws the income tax officer was all powerful, now, it
was the Commissioner who was so empowered. However in
order to achieve the given objectives he was expected to
“delegate” authority down the line but this delegation was to
be on purely functional lines. Thus an officer empowered to
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conduct Audit would not be issuing refunds. He would not be
in-charge of assessment records. And so on.
severe punitive action that has been very effective in many tax
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effective.
27. The need for technical proficiency in tax functionaries of a
high order is heightened by the fact that in Pakistan 75% of
income tax revenue emanates from the corporate sector and
100- 125 large corporate entities in the corporate sector make
this contribution. Each one of these entities understates due
tax liability and each is advised by a battery of extremely
proficient tax counsel. Needless to say, an assessing officer with
less than adequate proficiency will never be able to make any
headway in peeling away the layers of very complex
arrangements made to reduce tax liability.
extremely poor.
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d) A drastic reduction in the size of the informal sector. A
huge informal sector – such as that in Pakistan – means
that huge revenues are being lost and the rule of law of
law is being undermined.
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