Islamabad: Chairman Council of Islamic Ideology (CII) has said government cannot impose indirect taxes because they are prohibited in Shariah and in contravention to the teachings of Islam.
“Indirect taxes directly affect end consumers and any act that doesn’t facilitate consumers and needy persons is forbidden in Islam,” Chairman CII Maulana Muhammad Khan Sherani told News Lens Pakistan in an exclusive interview.
In other words, storing commodities or wealth is also prohibited according to the Islamic economic system, he remarked.
Last year, following pre-conditions by the International Monetary Fund (IMF), Finance Minister Ishaq Dar levied what is largely seen “mini budget” of Rs. 40 billion, News Lens Pakistan reported.
That mini budget prompted Atif Ikram Sheikh, then Islamabad Chamber of Commerce and Industry (ICCI) senior member, to warn that new budget will not only destabilize tax structure but will multiply poverty and unemployment too.
To a question about the CII’s mandate to discuss any issue of national interest and send to parliament for discussion, Sherani responded that under article 230-A of the constitution, CII is mandated to advise a House, a provincial assembly and others on any question referred to the Council as to whether a proposed law is or is not repugnant to the injunctions of Islam.
“The Council has the mandate to make recommendations as to the measures for brining existing laws into conformity with injunctions of Islam.”
When contacted, Dr. Javed Iqbal, assistant professor of economics at Quaid-e-Azam University, Islamabad, said a controversial issue in public finance is that whether direct or indirect taxes be preferred in tax structure.
“Indeed, both direct taxes and indirect taxes have their merits and demerits and therefore a good tax system should contain a proper mix of these two types of taxes,” Dr. Iqbal noted.
But Sherani said, “There is no room for indirect taxes in Islam. Taxes should not be imposed on end consumers but traders and industrialists be taxed instead.”
Dr. Abdul Rashid, associate professor at International Institute of Islamic Economics at International Islamic University (IIU), in his email reply, told News Lens Pakistan that developing countries like Pakistan depend more on indirect taxes than direct ones as they are unable to collect taxes from rich people.
Hamid Khan, an Islamabad based analyst, said that indirect taxes directly affect end consumers who should not be put under more burden in this era of inflation.
“If the government has no option but to impose indirect taxes, it should hammer out a well-conceived formula to broaden the tax net to generate revenue instead,” he added.
Khan said that new overture by chairman CII would unleash a fresh debate over the country’s complex tax system where well-off business tycoons evade tax while small traders are taxed heavily.
Common people and consumers have already voiced their concern following taxes on end consumers. Prices of daily use commodities surged manifold following announcement of mini-budget.
Chairman CII is viewed as a powerful person in the government and his views have weight equally in government as well as private sector.
Ahmad Taqqi, owner of a restaurant in Islamabad, said that suggestions floated by chairman CII should be introduced “in letter and spirit.”
He alleged the government under garb of indirect taxes or mini budget makes poor segment of society scapegoat. “Pakistan is an Islamic country and the government should listen to chairman CII and implement his ruling,” he remarked.
Wishing anonymity because he is not authorized to speak to media, a senior official at the Federal Board of Revenue (FBR) told News Lens Pakistan the government is no way out to address tax issues without imposition of mini budget or indirect taxes.
He, however, ruled out to comment on the rulings of chairman CII who said that imposition of indirect taxes is repugnant to Islam.
He said that almost 0.3 percent of Pakistani population files tax return or pay income tax, which he said is one of the lowest globally.
Almost seven million people in the country are eligible to pay income tax, he said.
“Taxes can be imposed only on income,” chairman CII said, adding that taxes couldn’t be collected from end consumers on purchasing of a commodity. Taxes, he reiterated, should be imposed on big traders and industrialists as they sale their commodities and in return they earn.
To a question, Dr. Iqbal rued that well-off Pakistanis evade taxes rather tax burden mostly being born by poor and common people.
Also, Sherani said that paper currency system should be replaced with gold, which is an acceptable and powerful medium. “The power of paper currency is due to power of a state otherwise it has no value,” he added.
The currency of dollar is powerful because the US itself is a powerful country otherwise dollar is simply a paper, which has no value, he said, adding that he wants the world to switch to gold currency instead.
A senior official at the Income Tax department, wishing to go unnamed, in a text reply, said that out of around 3.6 million registered voters more than one million people have filed their returns of income.
“In Pakistan, our most of tax revenues is coming from indirect taxes,” Dr. Rashid said. The direct taxes can’t pass to others such as individual income tax, corporate income tax, wealth and property taxes, he added.
He said that indirect taxes have very negative effects on consumers by making things expensive. Indirect taxes, he said lead to inequality of wealth/income in the society, whereas, direct tax help maintain equal distribution of wealth.
“According to my own study, the volume of underground/black economy or economic activities went unreported because of tax evasion and money laundering and that kind of activities are increasing in Pakistan,” he added
He said that at this time there is hue and cry in the country regarding offshore companies established by Pakistanis who did not pay tax properly. “So the problem is not with those people but the problem is with our corrupt tax system,” Dr. Rashid concluded.