Faltering attempts: Loopholes mar govt tax-collection efforts

Most people served with tax notices claim to have income from agriculture.

ISLAMABAD:

The government’s efforts to broaden the tax base and bring in more people into the tax net is off to a bad start, with the vast majority not filing returns and the few who do are claiming exempt status on grounds that their income is derived from agriculture or remittances.

Of the 300,708 people who have thus far been served tax notices, only 37,000 (or about 12.4%) have submitted tax returns, of which about 60% claim that their income is from tax exempt sources such as agriculture or remittances, said Salman Siddique, chairman of the Federal Board of Revenue.

The government has begun a drive to add more people into the income tax net by identifying 700,000 potential high income individuals who do not file their tax returns. In a population of around 180 million, only about two million people are registered active income taxpayers.

Of the 60%, about 54% have declared agriculture as their source of income while 6% declared remittances as the source of their income.

“To cross check, the federal government has decided to share with the provinces the details of those respondents who have claimed that their source of income is agriculture,” said Siddique.

The remaining 40% paid a paltry amount of a combined Rs453 million, said the FBR chairman. Last year, 26,708 individuals paid Rs356 million in income tax while another 10,181 persons deposited a mere Rs97 million during the first five months of the current fiscal year, he added.

Nonetheless, Siddique claimed progress on the audit front, stating that the withholding tax audit has already been initiated and that the government expects to collect around Rs14 billion in December, out of the Rs27 billion it generated in demands. Of the taxes currently subject to litigation, the FBR expects to collect Rs1.2 billion this month.

As the government attempts to meet the Rs1,952 billion tax collection target – which Siddique says is still achievable – the authorities are also planning to close several loopholes.

One of the biggest problems is the adjustments people claim on their sales tax returns, which are currently collected on a value-added basis but do not require any identification of the counter-party against whose taxes the person is claiming an exemption. “To plug the loophole, from January no input adjustment would be given without disclosing the computerised national identity card number by the claimant,” Siddique said.

Another loophole to be closed is the domestic sales of export-oriented companies, which will be subject to a 5% flat sales tax. The government abandoned an earlier effort to do so after coming under pressure from the commercial importers lobby, which seems to have at least partially gotten its way even with the new efforts. Siddique said number of taxed items has been brought down to 127 from 197 after “consultation with stakeholders.”

Published in The Express Tribune, December 20^th, 2011.