Unsatisfactory: Despite extensions, tax collection remains dismal

Less than 770,000 people file income tax returns, pay around Rs5 billion.

ISLAMABAD:

The government’s lax attitude to tax collection has generated poor results as despite numerous extensions and reliefs in penalties, less than 770,000 people have filed income tax returns and paid less than Rs5 billion in taxes.

According to officials of the Federal Board of Revenue (FBR), by the expiry of the deadline for filing income tax returns without paying penalties on late submissions, the figure could not cross the 770,000 mark, indicating weaknesses in the tax enforcement system.

The original deadline was September 30, which was extended to November 21. At the end of the deadline, only 525,000 people had filed income tax returns for fiscal year 2013-14. On November 21, FBR Chairman Tariq Bajwa claimed that 550,000 people had submitted the returns and the number would touch one million by December 5.

Owing to the unsatisfactory response, the FBR waived penalties until December 5. However, this strategy also failed to encourage the people to fulfill their legal obligation.

Finance Minister Ishaq Dar recently vowed to take punitive action against those who did not file the tax returns.

Last year, 835,000 people had filed the returns, a number that the FBR stressed would be taken to 1.25 million this year.

Talking to The Express Tribune, Bajwa still appeared hopeful to at least match the previous year’s performance. He said many income tax commissioners had given extensions on case-to-case basis, adding so far around 770,000 people had filed the returns and paid around Rs5 billion.

Bajwa said the taxes paid with returns would improve once the companies filed their returns by the December 31 deadline. Last year, the FBR received Rs13.7 billion in taxes along with 835,000 returns.

He said the FBR would soon start issuing notices to those who submitted the income tax returns last year, but failed to do so this year.

“Notices will also be sent to those who did not file wealth statement along with income tax returns.”



Many influential and wealthy people hailing from Lahore did not file wealth statements, as they opted to manually file income tax returns on the understanding that they would not be asked to submit wealth statements, said sources.

They added these people got extensions from respective commissioners and would quietly submit returns without wealth statements.

Experts blame the faulty tax system that allows the taxpayers to slip from the net. The FBR’s direct taxation is based on withholding taxes as many withholding taxes are treated as full and final liability.

In the last fiscal year 2013-14, the FBR collected Rs884 billion in income tax, of which Rs578.4 billion was on account of withholding taxes. Many of the withholding taxes were indirect in nature. For instance, the taxes paid by exporters, contractors and importers are their full and final liability.

Last year, the FBR collected Rs136.6 billion from contractors through withholding taxes. Exporters paid Rs26.7 billion in withholding taxes and importers paid Rs23.8 billion.

An amount of Rs51.9 billion was collected in withholding taxes on telephone bills and another Rs20 billion on electricity bills.

“It’s a flawed system and most of the withholding taxes are transactional taxes that do not fall in the strict definition of income tax,” said Dr Ikramul Haq, a prominent lawyer and tax expert.

Published in The Express Tribune, December 9^th,  2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.