Zafar Iqbal
In a move that reflects a deep disregard for fairness and transparency, the Federal Board of Revenue (FBR) has recently begun issuing notices to salaried individuals, accusing them of improperly claiming tax credits for income tax deductions in their returns. This action is not only an unfair burden on taxpayers but also reveals a deeper issue: the FBR’s desperate attempts to meet unrealistic revenue targets at the cost of the public’s trust.
Alarm over this new practice, describing it as harassment of taxpayers, have been raised. It has been revealed that hundreds of salaried individuals are receiving notices for discrepancies in their tax deductions, despite the fact that these discrepancies often arise due to failures on the part of employers, not employees. The FBR appears to be shifting the blame to individuals who are already subjected to high tax rates, undermining their confidence in the tax system.
Tax deductions for salaried employees in Pakistan are primarily handled by their employers, who deduct income tax at source each month and deposit it with the FBR. At the end of the fiscal year, employees file their tax returns based on the salary certificates issued by their employers. These certificates detail earnings and tax deductions, allowing employees to claim applicable tax credits or refunds. However, discrepancies can occur when employers fail to correctly deposit the withheld tax amounts or when the FBR has difficulty verifying the deductions through the IRIS portal.
Instead of addressing these issues at the source—the employers—the FBR is targeting individual employees, holding them responsible for the failure of their employers to fulfill their tax obligations. This not only adds unnecessary stress to the already overburdened salaried class but also reveals a fundamental flaw in the system.
The FBR’s move is seen as a direct result of the immense pressure to meet chronically unattainable revenue targets. With a massive Rs468 billion shortfall in the revenue target for the July-January period, and fears that this gap could grow to Rs1 trillion by the end of the fiscal year, the tax authority is scrambling for any means to boost its collections. However, instead of focusing on long-term reforms to broaden the tax base, the FBR seems to be resorting to desperate and ethically questionable measures.
The salaried class, already burdened by high tax rates, has few exemptions compared to other segments of the economy, making it an easy target for the FBR’s aggressive collection tactics. By issuing notices based on tax discrepancies that are often beyond the control of employees, the FBR is effectively penalizing individuals for systemic failures within the tax bureaucracy.
This is not the first time the FBR has been accused of unethical behavior. Reports have surfaced of FBR officials pressuring taxpayers to withdraw complaints filed with the Federal Tax Ombudsperson (FTO) regarding delays in issuing tax refunds. In one particularly troubling incident, an income tax practitioner seeking clarification on a delayed refund was warned that the refund would only be processed if the client withdrew their complaint. The FBR official even threatened to escalate the issue to the president, ensuring that the taxpayer would face an additional year of delay.
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Such tactics underscore the dysfunctional and morally questionable practices within the FBR, which seems to prioritize short-term revenue collection over the long-term goal of building a fair and efficient tax system. By harassing taxpayers and obstructing legitimate refund claims, the FBR not only exacerbates the public’s frustration but also undermines trust in the entire system.
The FBR’s actions highlight a broader issue facing Pakistan’s tax system: the persistent shortfall in tax revenue. The core problems—an overly narrow tax base and widespread tax evasion—have been long recognized but remain largely unaddressed. The FBR’s tactics are a response to these structural issues, but they do nothing to solve the underlying problems. The tax base in Pakistan is woefully insufficient, with a large portion of the economy, including wealthy individuals and certain sectors, remaining outside the tax net.
Without comprehensive tax reforms that target these core issues, the FBR’s aggressive tactics will only continue to alienate taxpayers and erode the credibility of the tax system. Structural reforms are necessary to expand the tax base, improve tax compliance, and ensure a fairer distribution of the tax burden.
While the FBR may believe that these short-term measures—harassing salaried individuals and pressuring taxpayers—can help close the revenue gap, the reality is that such tactics are counterproductive. They do not address the root causes of tax evasion and the narrow tax base, and they will not result in sustainable revenue growth. Instead, they fuel resentment among taxpayers, making it even harder to increase voluntary compliance.
In the long run, the FBR needs to shift its focus from punitive measures to building a more equitable and efficient tax system. This includes reforms to widen the tax base, improve the transparency of the tax process, and ensure that both individuals and corporations contribute fairly. Furthermore, the FBR must hold employers accountable for their role in withholding taxes, rather than shifting that responsibility to employees who are already at a disadvantage.
The actions of the FBR are undermining the relationship between the tax authority and taxpayers. For a tax system to function effectively, it must be built on a foundation of trust and fairness. The FBR’s current approach—harassing individuals for discrepancies they did not cause—does nothing to foster this trust. Instead, it creates a sense of frustration and helplessness among taxpayers, further eroding confidence in the system.
The tax authority must realize that such tactics, while potentially offering short-term gains, will ultimately lead to a more distrustful and disengaged public. Without meaningful reforms that address the underlying issues of tax evasion and a narrow tax base, the FBR will continue to flounder, and its efforts to increase revenue will remain largely ineffective.
The FBR’s recent actions against salaried individuals reflect deeper systemic failures within Pakistan’s tax collection system. Instead of addressing the root causes of its revenue shortfalls—such as tax evasion and a narrow tax base—the FBR has resorted to unethical tactics that harass individuals and undermine trust in the system. While these short-term measures may appear to offer a quick fix, they only deepen the public’s frustration and make it harder to achieve long-term solutions. To build a fairer and more efficient tax system, the FBR must focus on structural reforms that address the core issues of tax evasion, widen the tax base, and restore trust between the tax authority and taxpayers. Without these changes, the FBR will continue to struggle to meet its revenue targets and maintain the legitimacy of the tax system.
