ISLAMABAD: About 342,000 taxpayers who were income tax return filers until last year are still avoiding the tax net, forcing the government to extend the deadline for submitting mandatory annual statements of income and assets for the fourth successive time.
The Federal Board of Revenue (FBR) provisionally collected Rs1.302 trillion in taxes during July-November period of fiscal year 2017-18 (FY18), showing an impressive growth of 20%. But it still missed its first five-month revenue collection target of Rs1.363 trillion by about Rs61 billion.
Its monthly collection stood at Rs270 billion in November -up by Rs52 billion or 24% over the same month of last year, yet was below the target by Rs24 billion.
Number of income tax return filers drops to less than half
“Refunds during this month [November] have also been issued to the tune of Rs13 billion and provisional net revenue collection was recorded at Rs1.302 trillion for the first five months,” said the FBR spokesman. During FY17, collection for the first five months stood at Rs1.089 trillion, he added.
The spokesman said that the target for the year has been fixed with an annual increase of 19.2% over the previous year. The FBR has not officially disclosed the actual target and insists that it is meant to increase overall revenue by 19.2%.
By the end of November, about 991,187 individuals, associations of persons and companies filed their income tax returns, according to the FBR. According to the Active Taxpayers’ List for the tax year 2016, there were 1.33 million active taxpayers, indicating that about 342,000 are still avoiding to fulfil legal obligation.
Only 746,022 returns were received up to November 30, 2016, whereas till the filing of this story a total of 991,187 returns have been received and the number is still expected to increase, said the FBR spokesman. He said that this shows a substantial increase of around 33% in the number of returns received during the same period of FY17.
The FBR spokesperson said that the number of return filers will significantly improve once the active taxpayers’ list of 2016 is replaced with the 2017 list in March next year.
Tax policies that may work best for Pakistan
Due to slippage of huge numbers of people from the already extremely narrow tax base, the government on Thursday gave yet another extension in filing the income tax returns in the hope of bringing back some of these non-filers. It extended the date to December 15. Under the Income Tax Ordinance 2001, every taxpayer has to submit a detailed statement of income, expenditures and wealth by September of each year except companies whose financial year closes in December.
“The FBR should realise that a single minded revenue focus cannot lead to good tax administration and potential taxpayers will never enter the tax net by filing tax returns,” according to the Tax Reforms Commission (TRC) report. The commission had been constituted to improve FBR’s efficiency, plug lacunas and simplify tax laws but its report remains unimplemented since February 2016.
The TRC findings revealed that the FBR has entered into a vicious cycle due to erroneous policies and that the trend needs to change.
The FBR’s Broadening of Tax Base (BTB) wing issued 40,000 tax notices to non-filers during the first four months of the current fiscal year. Out of this, 21,000 filed income tax returns but paid a paltry sum of Rs46 million in taxes. The reason for low contributions is said to be the current income tax self-assessment regime that allows people to pay as much as they deem appropriate, until FBR picks their cases for audit.
Prime Minister Shahid Khaqan Abbasi has declared broadening of the tax base as his foremost priority. Still, the number of income tax return filers remains low despite the fact that over 4.4 million people hold National Tax Numbers (NTNs). The FBR is seemingly inactive about people not filing their returns.
Revenue shortfall: FBR misses tax collection target by over Rs250b
The government has also set different withholding and sales tax rates for filers and non-filers of income 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 earning for the FBR including other indirect taxes, contributing about 92.4% of the total FBR collection.
Under the law, all citizens of the country are bound to file income tax returns after the close of a fiscal year.
Published in The Express Tribune, December 1st, 2017.
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