Govt withdraws IDP tax; money to be refunded
By Kalbe Ali
ISLAMABAD: As the government struggles to decide whether or not to impose a flood tax, it has finally taken a decision on the Internally Displaced People tax it had imposed last year. It has decided to return the amount collected during the last fiscal year to corporate employers.
Almost three months after losing court battles, the Finance Ministry has given the Federal Board of Revenue (FBR) permission to return the revenue it had collected under the head of IDP tax.
Dawn has learnt that the summary in this regard has been forwarded to the Chairman FBR by the relevant department, which is expected to be signed by the end of the week. “The notice will allow the income tax commissioners of North and South to adjust the filed IDP tax against the income tax of the current fiscal year,” an FBR official said. The two commissioners will probably get the notice by next week.
Though FBR has filed an appeal in the Supreme Court against the recent decisions of the Lahore High Court and the Sindh High Court that declared the tax illegal, it is gearing up to return the revenue collected; this shows that its officials are not too optimistic about winning in the Supreme Court either.
The government decided to levy the one-time IDP tax at the time the Swat operation was begun in the summer of 2009. It argued that to rehabilitate the residents of Swat who were displaced due to the military operation, it was introducing a one-time tax to be charged on the bonus income of corporate executives at the rate of 30 per cent, apart from a tax at the rate of 5 per cent on tax paid by individuals and association of persons, whose taxable income exceeded Rs1 million.
The FBR had estimated revenues of around Rs2.1 billion through the tax on salary and then on bonus income. However, “We only collected around Rs400 million,” said an official.
This is because the collections came to a halt in September 2009 as the Sindh High Court asked the corporate employers not to deposit the IDP tax deducted from the salaries and bonuses of their employees.
The SHC gave this order after it was petitioned by more than 500 employees serving in various companies, who argued that the IDP tax was unlawful because it is a “tax on tax”.
The petitioners argued that the tax was discrimination against the salaried people; in their view the entire nation was responsible for helping the displaced people. They further argued that instead of broadening the tax base, the already burdened middle class was forced to bear the brunt of the rehabilitation.
At the same time, the Lahore High Court was also dealing with a petition against the tax and in October 2009 it granted a stay order and restrained banks from transferring IDP tax to the FBR; it was directed that the collected amount would be deposited in a separate account.
The writ petition in LHC was filed by four employees of a bank, who maintained that taxing individuals with an income of more than Rs1 million was discrimination, as well as contrary to the constitutional provision.
In February and July this year, the LHC and the SHC struck down the tax respectively. Though the government went in appeal against the decision, it clearly has decided that its chances of winning the case are limited. As a result, it is to return the amount it had collected before it was stopped in its tracks by the courts.
What is more important, however, is the precedence this sets for the flood tax under discussion, which has become controversial. Though there were reports that the government was considering imposing a flood tax, there was immediate and vocal opposition to the idea from various political parties that are part of the ruling coalition. This had indicated that imposing this tax might not be easy for the federal government which is under considerable international pressure to help pay for the rehabilitation, instead of counting on the world for aid.
But apart from political opposition, officials are of the opinion that the legal decisions ensure that the chances for imposing a flood cess are bleak. The officials said that a similar reasoning could be used against the board in a court of law if the flood tax was levied. “After the decision to return the IDP tax, there will be strong pressures on the government to not tax the salaried class again in a similar manner,” said a senior FBR official.
Officials confirmed that the FBR had given a presentation to the finance ministry and the ball was in the government’s court. And the government on its part has decided to put the responsibility on parliament.
According to an official of the Finance Ministry, the summary for imposing the tax would be presented in the National Assembly along with the summary of the Reformed GST. “We do not want to make the same mistake again and take the blame,” the official explained.
The presentation given to the Finance Ministry by the FBR suggested that the current income tax collection amounted to around Rs34 billion and if 10 per cent was collected on this amount (as some media reports suggested) the government could generate more than Rs3 billion.