09-09-2008, 06:01 PM
No tax on high-earning professionals
Tuesday, September 09, 2008
By Mansoor Ahmad
LAHORE
THE respect commanded by doctors, engineers, architects and lawyers is the reason for the lack of political will on the part of provincial governments to tax them, losing billions in revenue rather than taxing their earnings.
Services sector comprises 51 per cent of the documented economy of the country but contributes less than 30 per cent in tax revenues. Services that fall under the provincial domain also account for half of the non-documented economy. Punjab could earn much more by bringing these professionals under tax net. Many of these professionals do file yearly income tax returns but in majority of the cases the real income is concealed. Apart from the federal government that is losing income tax revenue, the major losers are the provinces that have the right to collect the general sales tax.
The best way to document any economic activity is through levy of value added tax or the general sales tax. If a doctor deposits 15 per cent sales tax on every fee charged from a patient, he/she would in fact be providing the blue print of earning. The 15 per cent deposited with the government would reveal 100 percent income. The quantum of tax evasion can be gauged by the fact that a doctor charging a fee of Rs 300,000 (which is normal in Lahore) for a heart surgery and performing on average one operation daily (though doctors perform 2-3 operations daily, but lets say for argument’s sake that a doctor performs only 300 surgeries in a year after accounting for leaves and holidays) would have to deposit Rs 1.35 million as sales tax for the fee he charged on operations. The Tax Department would know that under this head the doctor’s earning is Rs 9 million (300 X Rs 300,000). The yearly consultation fee would be Rs 3.6 million on providing consultation to an average of 12 patients a day for Rs 1,000 per patient for 300 days a year. The doctor would have to deposit sales tax amounting to Rs 540,000.
There are dozens of heart surgeons in Punjab that earn at least this much every year. Then there are orthopaedic surgeons who perform four to five or even more surgeries every day and charge from Rs 10,000 to Rs 50,000. There are general surgeons, gynaecologists, child specialists, ENT specialists and scores of medical experts whose income is visible if one visits their private clinics.
Doctors have not been brought in the sales tax net with the result that the provincial government is losing its rightful income of at least Rs one billion. In the absence of proper documentation of income, an overwhelming majority of doctors conceal their real incomes in tax returns. None probably pays a million rupees as income tax.
Doctors are the most respected professionals in the society. It is interesting to note that they do not generally provide receipts for consultation or surgery fees. Patients are so awed by them that they usually do not ask for one. Receipt is issued in specific cases where a patient can be reimbursed by his/her office for medical treatment. Those ‘rare’ receipts are probably the only proof of doctors’ income.
Lawyers who have earned respect for their struggle to uphold the constitution strongly oppose sales tax that could document their income. They in fact staged protests a few years ago when the Punjab government tried to impose sales tax on their services. It is indeed surprising that as custodians of law, they oppose a transparent procedure that could reveal their real income. Some lawyers charge fat fees ranging from Rs one to five million per case. There are hundreds of lawyer in Punjab who charge such fat fees. Even if they get one case a month they earn from Rs 12 to Rs 60 million per year. Given the number of cases that are filed in Punjab courts one can safely assume that the provincial government is losing billions in sales tax by not imposing tax on lawyers.
Architects charge from three to six per cent of the total cost of a project as advisory fee. In fact, the government should make it mandatory for an architect to certify the quality of every housing and construction project in order to ensure that building by-laws are not violated as happened in the case of a plaza in Islamabad that collapsed during an earthquake. Architects could enrich the Punjab government by hundreds of millions if brought into the tax net.
Engineers are also high-earning professionals spared from the general sales tax. Most of the restaurants, hair dressers, beauty parlours also do not pay any sales tax and pay a nominal income tax. This is in line with the widespread tendency of businessmen to avoid taxes as long as possible.
One outcome of imposing sales tax on services could be that doctors, lawyers and other professionals would pass it on to their clients. Taxing them would make healthcare and access to justice more expensive. The government, however, could compensate consumers in their income tax returns as those paying thousands of rupees for professional services ought to be taxed as well.
http://www.thenews.com.pk/daily_detail.asp?id=134755
Tuesday, September 09, 2008
By Mansoor Ahmad
LAHORE
THE respect commanded by doctors, engineers, architects and lawyers is the reason for the lack of political will on the part of provincial governments to tax them, losing billions in revenue rather than taxing their earnings.
Services sector comprises 51 per cent of the documented economy of the country but contributes less than 30 per cent in tax revenues. Services that fall under the provincial domain also account for half of the non-documented economy. Punjab could earn much more by bringing these professionals under tax net. Many of these professionals do file yearly income tax returns but in majority of the cases the real income is concealed. Apart from the federal government that is losing income tax revenue, the major losers are the provinces that have the right to collect the general sales tax.
The best way to document any economic activity is through levy of value added tax or the general sales tax. If a doctor deposits 15 per cent sales tax on every fee charged from a patient, he/she would in fact be providing the blue print of earning. The 15 per cent deposited with the government would reveal 100 percent income. The quantum of tax evasion can be gauged by the fact that a doctor charging a fee of Rs 300,000 (which is normal in Lahore) for a heart surgery and performing on average one operation daily (though doctors perform 2-3 operations daily, but lets say for argument’s sake that a doctor performs only 300 surgeries in a year after accounting for leaves and holidays) would have to deposit Rs 1.35 million as sales tax for the fee he charged on operations. The Tax Department would know that under this head the doctor’s earning is Rs 9 million (300 X Rs 300,000). The yearly consultation fee would be Rs 3.6 million on providing consultation to an average of 12 patients a day for Rs 1,000 per patient for 300 days a year. The doctor would have to deposit sales tax amounting to Rs 540,000.
There are dozens of heart surgeons in Punjab that earn at least this much every year. Then there are orthopaedic surgeons who perform four to five or even more surgeries every day and charge from Rs 10,000 to Rs 50,000. There are general surgeons, gynaecologists, child specialists, ENT specialists and scores of medical experts whose income is visible if one visits their private clinics.
Doctors have not been brought in the sales tax net with the result that the provincial government is losing its rightful income of at least Rs one billion. In the absence of proper documentation of income, an overwhelming majority of doctors conceal their real incomes in tax returns. None probably pays a million rupees as income tax.
Doctors are the most respected professionals in the society. It is interesting to note that they do not generally provide receipts for consultation or surgery fees. Patients are so awed by them that they usually do not ask for one. Receipt is issued in specific cases where a patient can be reimbursed by his/her office for medical treatment. Those ‘rare’ receipts are probably the only proof of doctors’ income.
Lawyers who have earned respect for their struggle to uphold the constitution strongly oppose sales tax that could document their income. They in fact staged protests a few years ago when the Punjab government tried to impose sales tax on their services. It is indeed surprising that as custodians of law, they oppose a transparent procedure that could reveal their real income. Some lawyers charge fat fees ranging from Rs one to five million per case. There are hundreds of lawyer in Punjab who charge such fat fees. Even if they get one case a month they earn from Rs 12 to Rs 60 million per year. Given the number of cases that are filed in Punjab courts one can safely assume that the provincial government is losing billions in sales tax by not imposing tax on lawyers.
Architects charge from three to six per cent of the total cost of a project as advisory fee. In fact, the government should make it mandatory for an architect to certify the quality of every housing and construction project in order to ensure that building by-laws are not violated as happened in the case of a plaza in Islamabad that collapsed during an earthquake. Architects could enrich the Punjab government by hundreds of millions if brought into the tax net.
Engineers are also high-earning professionals spared from the general sales tax. Most of the restaurants, hair dressers, beauty parlours also do not pay any sales tax and pay a nominal income tax. This is in line with the widespread tendency of businessmen to avoid taxes as long as possible.
One outcome of imposing sales tax on services could be that doctors, lawyers and other professionals would pass it on to their clients. Taxing them would make healthcare and access to justice more expensive. The government, however, could compensate consumers in their income tax returns as those paying thousands of rupees for professional services ought to be taxed as well.
http://www.thenews.com.pk/daily_detail.asp?id=134755