Only 6% of return filers pay most of direct taxes

Despite having database, tax authority fails to widen the revenue base

Shahbaz Rana November 18, 2017
In budget 2016-17, the federal government has proposed to impose restrictions on big businesses, limiting their relief in taxation on inter-corporate dividend income. PHOTO: FILE

ISLAMABAD: About 65,000 Pakistanis, constituting hardly 6% of the income tax return filers in tax year 2016, paid 79% of direct taxes, exposing the shallowness of an already narrow tax base, according to statistics of the tax directory.

Contrary to a mushroom growth in posh housing societies and luxury cars on roads, only 2,455 Pakistanis paid more than Rs10 million in income tax in 2016, according to an analysis of the Tax Directory 2016.

These 2,455 citizens paid Rs59.4 billion or 28% of total direct taxes in 2016. They constituted just 0.22% of the people who filed income tax returns in tax year 2016. Average per person contribution among the 2,455 individuals was Rs24.2 million.

The Federal Board of Revenue (FBR) had collected Rs210 billion in income tax in fiscal year 2015-16, which is the tax year 2016. About 65,000 Pakistanis paid 79% or Rs166 billion in income tax in that year.

Number of income tax return filers drops to less than half

Finance Minister Ishaq Dar had unveiled the directory in August this year. Pakistan’s narrow income tax base has remained a big issue for decades and successive governments have failed to improve the situation. The FBR’s tax-to-gross domestic product ratio was 10.7% in 2015-16 which further slipped to 10.6% in the last fiscal year.

In tax year 2016, 1.136 million individuals filed income tax returns and average per person contribution came in at Rs184,715.

Majority of the high net worth individuals remain outside the tax net despite the FBR having complete database of their lavish lifestyle. Under the law, every citizen earning more than Rs400,000 annually is bound to file income tax returns.

The 2016 tax year results are disappointing, putting a question mark over the 20,000-strong FBR force including over 16,000 under the Inland Revenue Service whose only task is to collect income tax.

The tax base remains narrow, though the government is punishing non-filers of income tax returns by charging significantly higher withholding tax from them compared with the filers.

These startling figures would bring the FBR management under more stress, particularly after Prime Minister Shahid Khaqan Abbasi took notice of corrupt practices in the tax machinery. He directed FBR Chairman Tariq Pasha to prepare and submit a report on corrupt officials having “embarrassingly compromised reputations” by November 28.

The maximum contribution was made by the people who paid income tax in the range of Rs1 million to Rs10 million. These 33,290 individuals paid roughly Rs87 billion or over 41% of total direct taxes. Average per person contribution came in at Rs2.6 million.

Another 28,532 people paid Rs20 billion or roughly one-tenth of total direct taxes. These individuals paid income tax in the range of Rs500,001 to Rs1 million. Their average contribution was Rs703,152.

The FBR needs to carry out an independent survey to find out why taxpayers are not filing tax returns despite high rates of withholding taxes, according to independent tax experts. They said the tax base was not only extremely narrow but also shallow.

Returns’ Filing: FBR urged to extend deadline 

The current dismal trend of return filing can only be changed by undertaking serious tax administration reforms in the FBR. A detailed report of the Tax Reforms Commission has remained unimplemented for the last around two years.

The tax directory showed that 136,467 people paid Rs31 billion in income tax, which was 14.4% of total tax contribution. They paid income tax in the range of over Rs100,000 to Rs500,000.

About 224,000 individuals paid Rs11 billion or 5.2% of total direct taxes. Their contribution ranged between Rs20,000 and Rs100,000. These are largely salaried-class people. As many as 360,354 individuals paid just Rs2.5 billion. But they were almost one-third of the return filers.

About 3,200 individuals paid Rs160,332 in income tax. There were 334,000 individuals who filed income tax returns, but did not pay a penny.

Published in The Express Tribune, November 18th, 2017.

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aki | 3 years ago | Reply We are paying highest percentage of GST on almost every good we buy from the market, infact Most of our people are now below the acceptable quality of life due to unemployment and almost meagre source of disposable income due to bad economy. We have no commercial manufacturing and international tourism resulting in sluggish economy. In the face of current scenerios, talking about taxes does not seem appropriate.
aki_12 | 3 years ago | Reply We have high percentage of gst applied on all goods. Our most people have very low quality of living standard due to no or meagre source of disposable income, talking about taxes is nothing but irrelevant
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