ISLAMABAD: In an unimpressive development, Pakistan’s tax base has shrunk further as only one million people have filed income tax returns in the current tax year, a decrease of almost 17% or 200,000 people, calling into question claims of broadening the tax base.
The Federal Board of Revenue (FBR) on Wednesday published the Active Taxpayer List for tax year 2016, comprising only 1,013,528 entries.
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The figure stood at 1.24 million in tax year 2015, which shows that 200,000 individuals and companies that were earlier in the tax net have this time skipped the network.
The FBR headquarters had given February 23 deadline to list the manually filed income tax returns, therefore, there is hardly any chance that the one million tally will significantly improve in coming months.
The figure was even worse than the 2014 tax year when return filers were 40,000 more than the current year. The FBR had set a target of widening the tax base to 1.5 million in 2016 but it fell short of the goal by almost 500,000 people.
In 2007, about 2.1 million people had filed income tax returns, but both PPP and PML-N governments failed to reach that point.
“Certainly, it is embarrassing for the government,” commented Dr Ikramul Haq, a well-known tax expert. “This shows that the policy of different tax rates for filers and non-filers of tax returns has backfired.”
In most of the cases, people were paying higher taxes and then recovering them from clients as the cost of goods and services, Haq said.
Three years ago, the government had introduced the policy of charging higher tax rates from those who do not file tax returns. It imposed 0.6% withholding tax on all banking transactions carried out by non-filers. Later, it cut the rate to 0.4%, giving in to pressure from traders.
It is also charging 0.6% withholding tax on cash withdrawal from banks by the non-filers. The government has set the dividend income tax at 17.5% for the non-filers compared with the standard rate of 12.5%.
Under the International Monetary Fund’s loan programme, Pakistan had committed to increasing the tax base by 300,000. It also served notices on more than 300,000 non-filers but their response was very discouraging.
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The Punjab government has already stopped collection of income-based agriculture tax while succumbing to political pressure.
FBR spokesman Dr Mohammad Iqbal, however, insisted that it was not a bad performance. On March 1, 2016, 852,235 people had filed income tax returns and the current year’s figure was much better, he said.
Iqbal was of the view that people did not file tax returns as their names were already present in the Active Taxpayer List of 2015, which allowed them not to pay extra tax.
Now the Active Taxpayer List of 2016 has been published and these 200,000 people will eventually file their returns.
Iqbal said the FBR had decided to launch an aggressive campaign and would serve 200,000 tax notices before June. The notices will be issued on the basis of commercial imports and withholding tax transactions.
Another FBR official said the revenue board would send tax notices to 10,000 non-filers.
However, the outcome is not likely to be different from the previous campaign when hardly 10,000 people came into the tax net.
Owing to administrative, policy and political challenges, the FBR has been finding it tough to meet its tax collection targets. In first eight months of the current fiscal year, it experienced a shortfall of Rs150 billion.
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However, tax authorities claim that out of the total shortfall, Rs124 billion is because of abrupt changes to government’s economic policies. This includes a hit of Rs90 billion in sales of petroleum products and Rs14 billion due to zero rating of five export-oriented industries.
Published in The Express Tribune, March 2nd, 2017.
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