Business

Number of income tax return filers drops to less than half

Only 0.58m returns filed by the end of Oct 31 against 1.21m last year

Shahbaz Rana November 01, 2017

The number of return filers remained low despite the launch of a campaign by the FBR to broaden the tax base. In this regard, FBR teams visited offices of big companies. PHOTO: FILE

ISLAMABAD: The Federal Board of Revenue (FBR) has again failed to perform in its two core areas of broadening the low tax base and achieving revenue collection targets despite Prime Minister Shahid Khaqan Abbasi’s declaration of tax reforms as his top-most priority.

The already low tax base has further contracted as only 580,000 people and companies have filed annual income tax returns by the expiry of an extended deadline, which is less than half of the returns filed in tax year 2016.

Tax collection in the first four months (July-October) of the current fiscal year has also fallen short of the target by around Rs40 billion, according to provisional figures compiled by the FBR by Tuesday evening.

The FBR’s performance remains unsatisfactory despite serious concern expressed by the top civilian and military leadership over the narrow tax base and low tax-to-gross domestic product (GDP) ratio, which has now started affecting socio-economic and security-related projects.

Tax policies that may work best for Pakistan

The prime minister has declared broadening of the tax base his foremost priority. Yet the number of income tax return filers stood at only 580,000 till October 31, 2017.

The original date for filing tax returns for individuals, association of persons (AOPs) and companies was September 30 that Finance Minister Ishaq Dar extended for one month in the hope of matching last year’s performance.

As many as 1.21 million people, AOPs and companies had filed income tax returns in tax year 2016, according to the Tax Directory 2016 that the finance minister unveiled in August this year.

In Pakistan, 4.3 million people are registered National Tax Number (NTN) holders and the FBR could not do anything about those people who are not filing the returns.

The government has also set different withholding and sales tax rates for filers and non-filers of tax returns. There are 71 types of withholding taxes that cover almost every possible transaction and expenditure. These taxes have now become an easy source of earnings for the FBR including other indirect taxes, contributing about 92.4% to the total collection.

Till October 31, 558,000 individuals filed income tax returns, which were half the number of returns filed in the previous year, according to FBR’s statistics.

Apart from these, only 690 companies filed income tax returns by the end of the deadline. One of the reasons for the low number is that many companies complete their financial year on December 31. For tax year 2017, over 21,000 AOPs filed the returns.

Compared to that, 79,800 companies and AOPs had filed tax returns last year.

Under the law, all people are bound to file income tax returns after the close of a fiscal year. Pakistan has one of the lowest tax-to-GDP ratios in the world. The ratio remained at only 10.6% at the end of last fiscal year 2016-17.

People have lost trust in the FBR and prefer to stay outside the tax net, according to a report of the Tax Reforms Commission.

The number of return filers remained low despite the launch of a campaign by the FBR to broaden the tax base. In this regard, FBR teams have visited offices of big companies. A team, led by the FBR chairman, also went to the General Headquarters to encourage military personnel to file tax returns.

In rare development, tax collection remains on track

Tax collection

Till 7.00 pm on Tuesday, the FBR provisionally collected Rs1.030 trillion in taxes from July to October 2017 against the target of Rs1.070 trillion, a gap of about Rs40 billion. Final receipts may go up slightly as banks were receiving taxes till 8.00 pm.

The collections were 18.6% or Rs158 billion higher than the corresponding period of previous year, but were below the pace needed to hit the annual target of Rs4.013 trillion.

In October alone, the FBR provisionally collected Rs265 billion, up Rs24 billion or about 10% over the same month last year.

The FBR on Tuesday asked the central bank to release Rs12.5 billion in tax refund against the 3,261 payment orders issued till August. With fresh payments, sales tax refunds amounting to Rs40 billion have been released in first four months of the current fiscal year. However, still over Rs200 billion worth of refunds are pending.

Published in The Express Tribune, November 1^st, 2017.

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COMMENTS (3)

Muhammad Sabir Shahzad | 6 years ago | Reply As it is right many persons could not registered and also not filling the return. it could be achieved when it always show the transparency in collecting the tax as well making the audits of the peoples without these no one can do the registration or comes into the tax net. i think this is the big issue and having a huge concern for the Govt & FBR also.

concerned | 6 years ago | Reply Why cant FBR file the tax return for us they have all the information they need to it. Why does the government wants us to do their job and top of it fine us for not doing it How crazy is that. If FBR is serious about increasing it tax revenues they should be filing the returns themselves.Eight OECD countries, including Finland and Norway, fully prepare returns for the majority of its taxpayers. In Estonia, it famously takes the average person five minutes to file taxes. In 2006, Goolsbee proposed a "Simple Return” that would pre-fill forms for workers with the most straightforward taxes. California tried something like this in 2004, when it sent 50,000 single taxpayers a European-style "ReadyReturn.” Ninety percent of users said it saved them time. The median cost of completion? Zero dollars.

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