The Federal Board of Revenue has convinced the government that the only way to bring in non-tax filers into the tax net, is to block their SIMs. Drawing on my experience of over ten years as Deputy Commissioner Income Tax and knowing the FBRÂ culture very well, this is a very clever move, as they will get many “cows to milk” for personal gains without doing what they were supposed to do to achieve voluntary tax compliance from those with taxable income. Such as focusing on enhancing tax compliance through improving taxpayer services, increasing awareness and education, leveraging technology and data analytics, offering incentives, implementing progressive penalties, and ensuring transparent use of tax revenues to foster a culture of voluntary compliance more effectively.
While the proposal to block SIMs of non-filers may seem like a quick fix, it could be counterproductive and harmful. A more sustainable approach would involve making the tax system more accessible, transparent, and engaging through education, incentives, and technology. This aligns with international best practices and respects the principles of voluntary compliance
FBR, while pleading its case, cleverly concealed the consequences of such a drastic measure, which could lead to significant public dissatisfaction and resistance, disrupt people’s daily lives and lead to widespread anger and potential protests. Blocking SIMs can hinder economic activities, in a country where mobile phones are integral to business operations, especially for small and medium enterprises (SMEs). It could also negatively impact sectors like mobile banking and e-commerce. This measure could disproportionately affect lower-income individuals who may not be non-filers due to deliberate tax evasion but because of lack of awareness, literacy, or access to resources needed to comply with tax regulations. Above all implementing this policy would require a robust mechanism to identify and accurately target non-filers. There’s a risk of errors, where compliant taxpayers might get affected, leading to legal challenges and administrative burdens.
The policymakers at the FBR know very well that given their reputation for being corrupt from top to bottom, so no matter what they do, not even a single businessman would believe that their intentions are good. They also know that non-filers are not averse to paying taxes, but they are intimidated by the high cost of filing income tax returns. Most retail business persons are uneducated or, if educated, would not be able to fill out the income tax return accurately. This leaves unintended gaps that tax authorities use to charge them with concealment of income, demanding huge sums of money to rectify the mistakes. Once a bargain is settled through tax lawyers, the faulty old return is replaced with a new rectified one. The tax that was evaded then goes proportionally to the tax officials and tax lawyers, without a single rupee going into the government coffers.
The FBR, being very clever, is trying to trap the government to help it to net new “fish” for personal gains, by portraying indispensability of blocking the SIMs of the 500,000 non-filers. Most likely, this will meet the same fate as the documentation of the economy, with disastrous consequences for the government, taxpayers, and the country’s economy, which is already under heavy distress due to non-business-friendly monetary and fiscal policies. This measure will likely result in lost opportunities far exceeding the amount of tax raised through this aggressive approach.
Consider the hypothetical situation: the proposal is approved and the SIM cards of non-filers are blocked. Non-filers will attempt to register themselves as taxpayers. They will retain an income tax attorney at hefty retainership fees. The lawyer will gather the non-filer’s income from all sources, expenditures, invoices, and proof of withholding taxes while guaranteeing that he will disclose solely that portion of the income that is equal to, or less than the amount of withholding taxes that have already been deducted. Later, he will grab a lot more money for the Income Tax Officer to accept the declared income. Under this scenario, the government and the non-filer will gain nothing, but both the lawyer and the income tax officer will amass even greater wealth and prosperity.
Let us build a second scenario where the non-filer is a little technology-savvy himself, or his son, daughter or any of his relatives or friends is technology-savvy. He will frustrate blocking of the SIM by pursuing a technological solution, like by using SIMs registered in others’ names, switching to internet-based communication apps, purchasing anonymous or prepaid SIM cards, using international SIM cards, mobile hotspots, alternative communication devices like satellite phones, VPNs, social media, email, and VoIP services.
With a little research the government would realize that both scenarios will be counterproductive. Had it been so effective the other countries would already have used this method.
But the fact is that not even a single developed country, including the USA or the European nations, has ever implemented such a measure. Instead, they employ a variety of strategies to encourage voluntary compliance by making various interventions, including making the tax filing process easier and more user-friendly to enhance compliance such as online filing systems, pre-filled tax forms, and mobile apps to reduce the complexity and effort required to file taxes.
They launch a public awareness campaign to educate the public about the importance of tax compliance and the benefits it brings to society. Offer incentives for Compliance such as tax credits, deductions, or rebates for timely and accurate filing of returns. Deploying advanced data analytics and technology to help identify potential non-compliance issues proactively by cross-checking financial transactions, property records, and other data to identify discrepancies and target non-filers more effectively without coercive measures. Instead of blocking, the services impose progressive penalties and interest on overdue taxes by making a clear communication about the consequences of non-compliance to motivate voluntary compliance.
Above all the government may set up tax filing services across the country on the pattern of NADRA in the private sector with the sole purpose of helping the business persons to file their tax returns and charge nominal fees. These services should not have administrative or policy connection with FBR, and its performance will only be determined by the number of tax returns filed, not on the basis of how tax was raised. This would enhance tax compliance by providing professional assistance, reducing errors, and making tax filing more accessible for business persons at the same time lower compliance barriers and broaden the tax base.
While the proposal to block SIMs of non-filers may seem like a quick fix, it could be counterproductive and harmful. A more sustainable approach would involve making the tax system more accessible, transparent, and engaging through education, incentives, and technology. This aligns with international best practices and respects the principles of voluntary compliance.
