Lost revenues: ‘Tax evasion costs exchequer Rs1.27tr’

Published: February 24, 2011

Curtailing it would reduce fiscal deficit, says FBR.

ISLAMABAD: For every Rs100 collected by the Federal Board of Revenue in taxes, it misses another Rs79 due to tax evasion, said Salman Siddiqui, chairman of the FBR, while testifying before the Senate Committee on Finance and Revenue on Wednesday.

The FBR estimates that the total revenue lost by the government as a result of tax evasion comes out to Rs1.27 trillion for the fiscal year ending June 30, 2011. This number is higher than the World Bank’s most recent estimate of Rs796 billion and is equal to 8 per cent of the GDP, nearly equal to the worst case scenario for the projected fiscal deficit for the current year.

With numbers as astounding as this, a wide-ranging crackdown against tax evaders seems to be on the cards. The FBR detailed its plan to begin prosecuting evasion.

“The FBR has credible evidence against 708,600 tax evaders and a campaign against them will start from Friday”, said Siddiqui. The number represents people who have  taxpayer identification numbers, known as NTNs, but have not filed their tax returns.

According to the plan, the FBR will give tax evaders a 30 day deadline to submit the details of their income and spending.

If the evaders do not submit declarations voluntarily, tax authorities will issue a provisional tax notice with a two-month deadline to respond, following which the recovery effort will start.

The FBR plans to prosecute tax evaders using indirect estimates of their income and lifestyle. The ownership of movable and immovable property, foreign visits and accounts in foreign banks will be used as evidence against suspected tax evaders.

Siddiqui, however, was somewhat cautious about
an aggressive campaign against tax evaders, fearing a negative impact on the economy. According to the FBR, over 70 per cent of all taxes evaded are corporate income taxes.

The Securities and Exchanges Commission of Pakistan has registered over 59,000 companies but only a little over 20,000 file their income tax returns with the FBR.

The Senate committee’s response suggested a degree of scepticism about the ability of the FBR to conduct an effective crackdown against tax evasion.

“My fear is that when the recovery campaign will be at its peak, the chairman of the FBR and his team will be transferred and that will be fault of the politicians,” said Senator Haroon Akhtar of the Pakistan Muslim League-Quaid.

Other senators went even further, suggesting complicity between FBR officials and tax evaders.

“Tax evasion is not possible without the connivance of the FBR and the bleak scenario reflects that its efficiency is zero”, said Senator Ahmed Ali of the Muttahida Qaumi Movement, the chairman of the committee.

Siddiqui acknowledged that corruption within the department was a problem and pointed out that until some of the senior members of his team were not removed from their posts, the FBR would not be able to effectively prosecute evaders.

He was also candid about the FBR’s inability to meet its revenue targets for the current fiscal year, describing the collection of Rs1,667 billion as “out of the question.” He put the more realistic figure at Rs1,586 billion, without any new measures to increase revenues.

The FBR also unveiled new tax proposals that the government wants to implement starting in March or April, provided it can get enough support in Parliament. The measures, which include an additional increase in the flood tax, are meant to cope with the revenue shortfall and may generate as much Rs36 billion in revenues.

The government wants to levy a flood surcharge of 15 per cent, which is five per cent higher than the previously announced rate. The flood surcharge is a temporary increase in withholding taxes and the advance income taxes as a means of helping the government deal with the impact of the 2010 floods.

Published in The Express Tribune, February 24th, 2011.

Reader Comments (9)

  • Ali Turk
    Feb 24, 2011 - 10:12AM

    It is sheer incompetence of the Tax Officials and they should be taken to task.
    This attitude of tax officials has harmed the country and I feel the whole tax system should be massively reformed.
    Siddiqui acknowledged that corruption within the department was a problem and pointed out that until some of the senior members of his team were not removed from their posts, the FBR would not be able to effectively prosecute evaders

    So who is stopping Chairman FBR from removing them.Problem is 95% of the officials have serious ethical problemsRecommend

  • Habibullah
    Feb 24, 2011 - 11:21AM

    Enough is enough, now the time is over, there must be some foolproof system of collecting taxes from all tax-evaders (especially from those who are most influential and have political backings). The government should now be serious in imposing Agriculture Tax too.Recommend

  • a ercelan
    Feb 24, 2011 - 1:14PM

    asset taxation is so much easier – e.g. vehicle, land, structure, power connection …simplify and make transparent. collection agents could be centralised e.g. housing society. no exceptions otherwise evasion will begin again. Recommend

  • Shakir Lakhani
    Feb 24, 2011 - 2:00PM

    Ask any peon or taxi driver, he will tell you that most of the taxes end up in Swiss bank accounts. And I wonder why they don’t make a law exempting farmers from paying income tax. As long as feudals are allowed to contest elections, they will never agree to tax agricultural income. And they will continue to drive their Prados and Pajeros through red lights, while the common tax-payer is made to suffer. Recommend

  • abdullah
    Feb 24, 2011 - 2:08PM

    @habibullah
    if agricultural tax is implied than prices will b sky rocketing….and by the way its very easy to ditch agri tax bcoz its based on the land u own….and u can play a lot with that…….Recommend

  • Asrar Ahmed
    Feb 24, 2011 - 2:45PM

    This is FBR order dated 21 Feb 2011:

    http://www.fbr.gov.pk/HrmNotification/notifications/HRM/Notifications/2011/0357-M-I-2011.pdf

    An Director General of Internal Audit of Custom at Karachi is posted with office (stationed) at Lahore.
    Mr Chairman, FBR please get serious ,this nation is in economic crisis and it is posting orders like these which have messed up FBRRecommend

  • Meekal Ahmed
    Feb 24, 2011 - 4:08PM

    How are they going to look at “foreign bank balances”?

    Of course there is complicity.

    Even what is with-held is not put into government coffers because of complicity.

    Has it taken the FBR 62 years to decide to go for the big tax evaders? Is this a new discovery that was not known before?

    Why should going after tax evaders have a “negative” impact on the economy? If it does, they should be let off? What kind of dumb logic is this?

    Instead of increasing the flood tax, bring back the progressive taxes. Tax wealth, real estate land transactions, gifts and inheritance. Recommend

  • saad hafeez
    Feb 24, 2011 - 11:02PM

    why would going after some tac evaders have a negative effect on the economy, i dont understand. and lastly i’d like to say, better late than never. it took them this long to come up with some sort of plan and lets just hope now that they something good comes out of it, inshaAllahRecommend

  • Anserali Khan
    Feb 25, 2011 - 12:30PM

    How can FBR appoint a Director General of Internal Audit of Custom at Karachi and post him with office at Lahore.
    The Finance Minister and Mr Chairman, FBR should look into this .

    This is a joke with the nationRecommend

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