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Pakistan in tax trouble; Punjab landlords refuse to pay Islamic agri tax

Why there is such a poor compliance to Islamic agri tax, Usher in Pakistan? Well, those who have to execute the Usher law are farmers and growers themselves. And they are are creating obstacles to cement their vote bank.

Poreg view: Tax compliance is an anathema to Pakistan. Even among the salaried class, whose incomes are a matter of record and hence easy to deduct tax at source, there are an estimated 1, 19, 870 persons who are not filing their income tax returns. All of them draw a salary of more than Pakistan rupees five lakhs a year, according to the Pakistan’s official tax collection agency, FBR. So much so, it is not a surprise that the farm tax failed to yield much revenue.

Landlords in Punjab in particular have refused to pay Usher, the Islamic tax on agricultural produce, Qaiser Butt reported in The Express Tribune today (May 27).  Punjab is a province ruled by business friendly Pakistan Muslim League led by former Prime Minister Nawaz Sharif, who himself is a business tycoon. He is not known to pay his tax dues regularly.

“The landowners maintain that they are willing to pay either agriculture tax or Usher, but are unwilling to pay both, although they do view Usher as a religious obligation,” Punjab Zakat department’s Deputy Secretary Shabbir Hussain told The Express Tribune.

The issue came to light when the Auditor General of Pakistan (AGP) voiced concern in his report for the year 2009-10 that Usher was not being collected by provincial revenue departments throughout the country since 1990.

Usher was introduced in Pakistan in the year 1982-83 under the Zakat and Usher Ordinance, 1980. It was expected to yield a revenue of Pakistan Rupees 2 to 3 billion that year itself. Since much water has flown into the river Sindh, the Usher revenue should be substantial today, if there is Usher- compliance.

Who is to blame for such a poor show? Federal government in Islamabad puts the blame on provinces. Tahir Maqsood, the joint secretary at the Ministry of Religious Affairs told The Express Tribune that Usher has been collected in all the provinces except for Punjab for several years.

The official was economical on truth because the Usher receipts in the year 1991-92 for which Usher data is available, was a princely sum of Rs39.46 million. The assessment for that year was Rs122.70 million.

A senior official in the finance ministry has put the issue in perspective. “In fact, those who have to execute the Usher ordinance are farmers and growers themselves. These are the very same people who are creating obstacles in the implementation of Usher laws.”

So, the ministerial appeals to landlords, and circulars to the tax collectors that go out from Islamabad for Usher compliance are no more than pious exercises in deception.

The situation is no different in respect of most other taxes.

A case study by The Nation from Lahore in respect of ‘Withholding Tax’ highlights the malice. Under Section 153 of the Income Tax Ordinance, 2001, the cotton ginners are required to withhold tax on the sale of cotton bales but they have defaulted to the tune of Rs. 2597 million. Out of this Rs. 1881 million have been recovered upto April, 2012. Majority of the cotton ginners are located in Multan, Hyderabad, Bahawalpur and Sukkur

With such a poor record, it is no surprise that Pakistan is fast running out of luck on the economic front.

The budget deficit is ballooning. At Rs1.44 trillion, it is 7.2% of the total size of the economy. It is Rs469 billion or 3.2% higher than the annual target of Rs975 billion or 4% of GDP.

In the ten month period ending on March 31, the current account deficit was $3.4 billion. It is likely to swell to $4.2 billion by June, leaving just enough forex reserves to support 2.8 months of import bill.

Fiscal deficit at Rs1.48tr is a record. The government spent Rs2.44 trillion in the ten months ending on March 31. Its net income during this period was Rs 983 billion, leaving a deficit of Rs1.48 trillion — the highest ever in the country’s history.

-M Rama Rao

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